The U.S. dollar rose Thursday, bouncing after the previous session’s weakness as U.S. President Donald Trump downplayed fears that he will prematurely fire Fed Chair Jerome Powell.

At 04:40 ET (08:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.3% to 98.405, after snapping a six-day winning streak after sharp losses during the previous session.

Dollar volatile on Powell’s future 

The U.S. currency traded sharply lower briefly on Wednesday after it looked like Trump had decided to dismiss the head of the Federal Reserve Jerome Powell, before the president announced he had no plans to oust the Fed chair.

He added that he felt it was “highly unlikely” that Powell would be dismissed over fraud, referencing Republican complaints about the elevated costs of the Fed’s $2.5 billion renovation of its Washington headquarters. The Fed has defended its handling of the project.

The Fed leader has been a frequent recipient of Trump’s trade-related ire, with the president criticizing Powell for not moving to quickly slash interest rates. 

Trump firing Powell would be a monumental event as no president has ever formally dismissed a Fed Chair. 

“In that hour, we saw the reaction we would have expected: a steepening in the U.S. yield curve, and the dollar sharply lower,” said analysts at ING, in a note.

“However, it never looked like markets fully priced in Powell’s exit yesterday afternoon. Pricing for a September Fed cut didn’t go beyond 20bp, and EUR/USD failed to get beyond 1.1720 even before Trump’s denial caused an unwinding of all market moves.” 

Underpinning sentiment as well were surprisingly unchanged month-on-month producer price figures for June, which helped to soothe some jitters fueled by a separate report earlier this week that showed an acceleration in consumer price gains.

Sterling slips on weak labor data 

In Europe, EUR/USD fell 0.4% to 1.1699, ahead of the release of the final reading of the eurozone consumer price index for June, and is expected to confirm last month’s CPI release at 2.0% on an annual basis, up from 1.9% the prior month. 

The European Central Bank signalled after its June meeting that it was likely to keep interest rates unchanged at its next meeting later this month, but Trump’s threatened 30% tariff on European Union imports is likely complicating this decision making.

GBP/USD dropped 0.3% to 1.3390, after data released earlier Thursday showed that the U.K. unemployment rate rose more than expected in May, while pay growth slowed slightly, offering room for the Bank of England to cut interest rates once more next month.

The jobless rate rose to 4.7% in the three months to May, the highest level since June 2021, while pay growth across the whole economy, excluding bonuses, fell to an annual 5.0% rate in the three months to May, below the 5.3% seen the prior month.

Aussie dollar slumps

Elsewhere, USD/JPY traded 0.5% higher to 148.64, as attention turned to election polls suggesting Prime Minister Shigeru Ishiba’s coalition may lose its upper house majority. 

AUD/USD fell 1% to 0.6472, falling to its lowest level in over three weeks, after data on Thursday showed that Australia’s labor market added far fewer jobs than anticipated in June, while an unexpected rise in unemployment pointed to a continued slowdown in hiring activity.

USD/CNY traded largely unchanged at 7.1798.

Cited from: Investings