**U.S. Dollar Retreats as Trump Fires Fed’s Cook; Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY**
*Original article by James Hyerczyk, FX Empire*
*Expanded and rewritten by ChatGPT*
The U.S. Dollar experienced a notable decline in the foreign exchange markets following significant political news related to the Federal Reserve. On Tuesday, May 29, 2024, reports surfaced that former President Donald Trump, during a campaign appearance, declared intentions to remove Federal Reserve Governor Lisa Cook should he return to the White House. This announcement sent ripples through the financial markets and raised concern among investors regarding the potential politicization of the central bank.
The dismissal of a sitting member of the Board of Governors—or in this case, talk of such action—is a rare and provocative gesture. It raised alarms over the implications for the Federal Reserve’s independence, which is traditionally insulated from political interference. Such concerns have historically influenced investor behavior in the forex markets, especially regarding the U.S. dollar.
Below is a detailed analysis of the impact this development had on major currency pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
## Political Shock Sparks Dollar Weakness
The U.S. dollar came under pressure as traders processed Trump’s declaration. In the short term, the political volatility added risk to dollar positions, pushing investors to readjust their outlooks. The combination of political uncertainty, doubts regarding Federal Reserve autonomy, and ongoing inflation challenges created headwinds for the greenback.
Key contributing factors to the dollar’s retreat included:
– Renewed political rhetoric targeting the Federal Reserve’s independence
– Risk aversion among traders ahead of U.S. economic data releases
– Profit-taking from recent dollar strength
– Concerns about future Fed policy under political pressure
The dollar index (DXY), which measures the greenback against a basket of major currencies, slipped slightly in response to the news. Traders remained cautious ahead of key reports, including the upcoming PCE Inflation data and the Non-Farm Payrolls (NFP) figures later in the week.
## EUR/USD: Captures Gains on Dollar Weakness
The EUR/USD pair rallied following the dollar’s retreat, climbing to a new multi-week high. The euro found support both from the downward move in the U.S. dollar and from relatively hawkish commentary by European Central Bank (ECB) officials.
Highlights for EUR/USD:
– Price moved above the 1.0800 level, a significant psychological and technical resistance point.
– Traders interpreted the rise as part of a short-covering move due to dollar weakness, not necessarily euro strength.
– Improved German economic sentiment, as evidenced by higher-than-expected business confidence reports, helped support the EUR.
Technical overview:
– Resistance is seen near the 1.0880 to 1.0900 range
– Support holds around 1.0780 and lower at 1.0725
– RSI momentum on the daily chart indicates the possibility of further upside in the short term, but potential overbought conditions may limit the scope of gains
Traders now eye inflation updates from both the U.S. and the Eurozone to validate whether the currency can maintain its upward trajectory.
## GBP/USD: Extends Rebound Amid UK Political and Economic Developments
The British pound also capitalized on the dollar’s softness, with GBP/USD climbing above recent resistance levels. In addition to dollar weakness, Sterling found modest support from expectations that the Bank of England may delay interest rate cuts.
The market was also digesting UK election news after Prime Minister Rishi Sunak called for a general election in July. Although political uncertainty can sometimes weigh on the local currency, traders appeared more focused on relative U.S. dollar declines than domestic UK issues.
GBP/USD performance summary:
– Broke above the 1.2800 resistance area in early trading
– Market participants speculate about the potential for a Bank of England pause
Read more on EUR/USD trading.