**Dollar Setback Linked to Kugler and McEntarfer Departures**
*Original reporting by James Skinner, PoundSterlingLive.com*
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Recent movements in the foreign exchange market have seen the US dollar underperforming against major rivals, including the euro. Analysts and market watchers attribute this setback to factors beyond traditional economic releases, pointing particularly to recent changes at the Federal Reserve involving the departures of key figures: Federal Reserve Governor Adriana Kugler and New York Fed Senior Economist John McEntarfer. This article explores these recent personnel shifts, the underlying market reactions, and the prospective impacts for the dollar and EUR/USD in the near future.
## Background: The Dollar’s Recent Challenges
The US dollar began the week trading on a weaker note, showing losses against both developed and emerging market currencies. This followed a period of strength earlier in the year as markets had scaled back their expectations for Federal Reserve interest rate cuts in 2024, increasing the dollar’s appeal. However, shifting sentiment around Fed policy, combined with consequential resignations at the central bank, has now undermined the greenback.
– The Dollar Index (DXY), a measure of the US currency against a basket of developed market peers, fell by over 1 percent during the first major trading session after the news.
– The euro (EUR/USD) rebounded from multi-month lows, climbing above the 1.07 level.
– Emerging market currencies, notably the Mexican peso and Brazilian real, also posted notable gains versus the dollar.
## Focus on the Federal Reserve: Staff Departures Raise Eyebrows
The heart of the recent dollar weakness traces back to news about internal changes at the Federal Reserve:
### Adriana Kugler
– Appointed by President Biden, Adriana Kugler joined the Fed’s Board of Governors in 2023.
– Seen as one of the more dovish (rate-cut supportive) members of a generally cautious board.
– Her departure, expected but not immediate, has left some market participants uncertain about the direction of policy deliberations.
### John McEntarfer
– Senior economist at the influential New York Fed.
– Instrumental in shaping research and internal policy discussions, especially regarding labour market and inflation dynamics.
– His exit comes at a time when Fed officials are wrestling with the delicate balance between fighting inflation and supporting job growth.
Together, these announcements have injected uncertainty and contributed to the perception that future Fed policy could lean less restrictive, especially with dovish voices potentially absent from key discussions.
## Market Sentiment: Why Federal Reserve Staff Matters
Though the Federal Reserve’s seven-member Board of Governors and regional bank presidents officially set monetary policy, senior economists and staff hold significant sway in shaping forecasts, background studies, and policy recommendations.
Market participants read Kugler’s and McEntarfer’s departures as potentially shifting the Fed’s bias:
– A more “hawkish” (rate hike inclined) composition could re-emerge if these positions are filled with figures who favour tighter monetary policy.
– Alternatively, protracted vacancies or more moderate appointments could tilt Fed discussions towards inaction or even an earlier pivot to rate cuts, especially as inflation shows evidence of softening.
## Response from Currency Analysts
James McCormick, strategist at NatWest Markets, described the dollar’s setback as a function of “shifting fed dynamics brought forward by resignations and renewed debate around the appropriate path for rates into 2024.”
Other analyst commentary included:
– **Jane Foley, Rabobank:** Suggests that the combination of dovish departures and cooling inflation data gives the market fresh reason to bet on Fed rate cuts by year-end.
– **Derek Halpenny, MUFG:** Observes that the dollar’s reaction underscores its sensitivity to any signals that Fed hawkishness might wane, particularly when economic surprise momentum fades.
– **George Saravelos, Deutsche Bank:** Points out that even minor adjustments in Fed staff can create outsized moves when speculation about the future policy path
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