The dollar index (DXY00) on Wednesday rose by +0.03%. The dollar found support on Wednesday on an increase in safe-haven demand from an escalation of geopolitical risks in Europe after Poland shot down Russian drones that had entered its airspace. However, the dollar gave up most of its advance after bond yields declined on a weaker-than-expected US Aug PPI report, which cemented expectations for at least a 25 bp rate cut by the Fed at next week’s FOMC meeting. The forex markets now await the key US CPI report on Thursday.
Limiting the upside in the dollar are the increased expectations for Fed easing through year-end. The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran’s intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors.
