The Fed's monetary policy is clearly USD-positive at the moment. Rejoice while it lasts – Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, reports on Donald Trump's Fed plans.
Donald Trump, the presumptive Republican presidential nominee with a good chance of returning to the White House in early 2025, has announced that he will not renew Fed Chair Jay Powell's term in 2026 when his current term expires. This unusually early announcement can only be interpreted in one way: Trump is planning a much more sustained attack on the Fed's independence this time around than he did during his last term.
An effective attack on the Fed's independence could end up being very negative for the Dollar.
A monetary policy under the thumb of a president like Donald Trump will likely be far too loose on average. This would be particularly relevant if Trump were to significantly increase punitive tariffs against China. During his last term, these tariffs positively affected the USD because no one expected the Fed to let inflation slide. Ultimately, the net increase in demand for US goods remained a USD positive. This would be different if confidence in the Fed's fight against inflation were to evaporate.
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