Dollar Firms but Fed Concerns Persist: What Investors in Oman Should Watch Next
SINGAPORE — The US dollar strengthened against the euro and the British pound on Wednesday, despite ongoing investor concerns about the Federal Reserve’s independence, which may constrain further gains in the currency.
The euro declined approximately 0.4% to $1.1593, while sterling slipped 0.3% to $1.3441, partially reversing gains made after former US President Donald Trump announced on Monday his intention to dismiss Fed Governor Lisa Cook over alleged mortgage loan improprieties. Cook’s attorney responded by stating she plans to file a lawsuit to block her removal, potentially initiating a prolonged legal battle.
Trump’s unprecedented attempt to remove a Federal Reserve Governor intensifies the pressure he has exerted on the central bank to reduce interest rates since his return to the White House earlier this year. While the dollar has shrugged off immediate concerns about Fed independence, Trump’s actions have contributed to a steepening US Treasury yield curve.
“Trump has essentially taken over the Fed’s forward guidance role for now, signaling to markets that lower rates are coming, which is reflected in a steeper yield curve,” explained Jamie Cox, managing partner at Harris Financial Group.
On Wednesday, the two-year US Treasury yield, which reflects near-term rate expectations, hit a low of 3.6540%, its lowest since May 1, as traders increased bets on imminent rate cuts by the Fed. Meanwhile, yields on longer-term bonds have risen amid worries that premature monetary easing could trigger a resurgence in inflation. The 30-year yield edged up slightly to 4.9223%.
The dollar’s resilience may indicate that market participants are awaiting stronger confirmation from upcoming August employment and inflation data before fully expecting the Fed to proceed with rate cuts next month, said Lee Hardman, senior currency analyst at MUFG. According to the CME FedWatch tool, money markets currently price in an 87% probability of a 25 basis-point cut in September.
In Europe, political developments in France remain a focus for the euro, as Prime Minister François Bayrou seeks to preserve his minority government. French government bonds stabilized on Wednesday, following a rise in the 10-year benchmark yield to its highest level in five months.
Across other currencies, the US dollar gained about 0.2% against both the Japanese yen and the Swiss franc. The New Zealand dollar fell 0.4% to $0.5834. — Reuters
Special Analysis by Omanet | Navigate Oman’s Market
The recent turmoil surrounding the US Federal Reserve’s independence, marked by President Trump’s attempt to remove Fed Governor Lisa Cook, signals potential volatility in global currency and interest rate markets. For businesses in Oman, this means navigating uncertainty in the US dollar’s strength and shifts in global borrowing costs. Smart investors and entrepreneurs should monitor US monetary policy developments closely, as anticipated Fed rate cuts could influence capital flows and financing conditions, impacting trade and investment opportunities linked to the US and global markets.
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