Trump Begins "Overhaul" of the Fed and BLS: Will the Dollar Become the Biggest "Victim"?

Many Wall Street strategists and economists warn that as the credibility of U.S. institutions comes under threat, the dollar and other U.S. assets may face further selling pressure...

U.S. President Trump now has the opportunity to choose a successor for Fed Governor Kugler, who resigned last Friday. This appointee could likely become the "shadow Fed chair" as previously mentioned by Bessent—officially taking the Fed chair position after Powell's term ends in May next year. Undoubtedly, this dynamic could significantly weaken Fed Chair Powell's influence in the coming months.

Combined with Trump's dismissal of Bureau of Labor Statistics chief Erica McEntarfer last week, investors may also downgrade the valuation of U.S. assets due to concerns over the reliability of economic data. Such worries have already dealt a severe blow to the dollar last Friday, prompting some funds to once again retreat from U.S. assets...

Robert Bergqvist, senior economist at SEB, said: "Unfortunately, we are witnessing a new attempt by the White House to further consolidate power. All of this justifies a higher risk premium for holding U.S. assets."

Concerns over the politicization of U.S. institutions come as signs of an economic slowdown emerge. Although the dollar showed initial signs of recovery in July, it plunged sharply against all G10 currencies last Friday after the U.S. nonfarm payrolls report fell short of expectations.

The ICE Dollar Index dipped further to a one-week low of 98.58 in early Tuesday trading, while the Bloomberg Dollar Index remained weak, having fallen nearly 8% year-to-date.
The weak jobs data has led traders to ramp up bets on Fed rate cuts, with money market pricing now implying a 94.4% probability of a September rate cut.

Following Kugler's resignation, this trend has undoubtedly accelerated—Kugler was the most hawkish official among Fed governors, while Trump has been calling for immediate rate cuts.