USD/CHF consolidates around 0.8050, Fed’s Cook vows to defend her job
- USD/CHF wobbles as investors seek fresh developments on Fed Cook’s lawsuit against her termination by US President Trump.
- Fed Cook’s lawyer stated that her removal lacks any factual or legal basis.
- Investors await US PCE inflation and Swiss Q2 GDP data.
The USD/CHF pair trades in a tight range around 0.8050 during the Asian trading session on Wednesday. The Swiss Franc pair consolidates as the US Dollar (USD) trades calmly, with investors seeking fresh development on Federal Reserve (Fed) Governor Lisa Cook’s termination by United States (US) President Donald Trump over mortgage allegations on late Monday.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 98.35.
US President Trump shared a letter on Truth.Social in which he announced the removal of Fed Governor Cook, citing that she made false statements on one or more mortgage agreements.
Meanwhile, Fed’s Cook has decided to defend allegations by filing a lawsuit against US President Trump’s decision to fire her. "His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action," Cook’s lawyer, prominent Washington attorney Abbe Lowell, said, Reuters reported.
On the economic front, investors await the Personal Consumption Expenditure Price Index (PCE) data for July, which is scheduled to be released on Friday. The inflation data will influence market expectations for the Fed’s monetary policy outlook.
According to the CME FedWatch tool, there is an 87% chance that the Fed will cut interest rates in the September monetary policy meeting.
In the Swiss economy, investors await the Q2 Gross Domestic Product (GDP) data, which will be published on Thursday. The Swiss economy is expected to have expanded at a moderate pace of 0.1%, against a 0.5% growth seen in the first quarter of the year.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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