Dollar set for monthly drop

The dollar wobbled on Friday, poised for a 2% drop in August against major currencies on rising odds of the Federal Reserve cutting interest rates next month while worries about the threats to the U.S. central bank’s independence linger.

President Donald Trump’s campaign to exert more influence over monetary policy, including attempts to fire Lisa Cook, one of the Fed’s governors, has weighed on the dollar. Cook filed a lawsuit claiming Trump has no power to remove her from office.

The legal battle is the latest chapter in Trump’s attempts to reshape the central bank after repeatedly criticising the Fed and its Chair Jerome Powell for not cutting interest rates.

“If markets perceive the FOMC’s independence as compromised, inflation expectations could become unanchored, driving long-term interest rates higher,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Currency markets were tentative on Friday, with the euro easing a bit to $1.16625, but on course for a 2% gain in August. Sterling last bought $1.3509 and the Japanese yen fetched 147.01 per dollar.

The Australian dollar was steady at $0.6533, set for a 1.6% gain in the month, while China’s yuan hit its strongest level in 10 months against the dollar as steady central bank fixings and a hot domestic stock market drive the currency higher. [CNY/] [AUD/]

The dollar index, which measures the U.S. currency against six major peers, was at 97.917, on course for a 2% decline for the month. The index is down nearly 10% this year as erratic U.S. trade policies drove investors towards alternative assets.

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