US Dollar Seen at Risk From Trump’s Moves to Pick Policymakers

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US Dollar Seen at Risk From Trump’s Moves to Pick Policymakers.

foreign exchange :: 2025-08-04 :: source - bloomberg

By Greg Ritchie

(Bloomberg) -- The dollar and other US assets are vulnerable to further selloffs on threats to the credibility of the country’s institutions, strategists and economists said.

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US President Donald Trump now has a chance to choose a replacement for Federal Reserve Governor Adriana Kugler following her resignation Friday, creating a dynamic that could undermine Chair Jerome Powell’s influence.

Combined with Trump’s firing of the head of the Bureau of Labor Statistics Erika McEntarfer last week, the risk is investors mark down US assets due to threats to the independence of economic data and monetary policy. Such concerns have already hurt the dollar this year and led some funds to shift away from US bonds and stocks.

“Unfortunately, we are witnessing new serious attempts to concentrate more and more power in the hands of the White House,” said Robert Bergqvist, a senior economist at SEB AB in Stockholm. “All of this justifies increased risk premiums for holding different US assets.”

Concerns over the politicization of US institutions are also coming at a time of evidence for a slowing economy. While the dollar showed signs of a tentative rebound early last week, it fell sharply Friday against every Group-of-10 currency after a weaker-than-expected US jobs report.

The jobs data led traders to amp up bets on Fed easing, with money-market pricing implying an interest-rate cut next month is more likely than not. The move gathered pace after the resignation of Kugler, who voted to hold rates steady last week, given Trump has been calling for immediate rate cuts.

“US policymaking credibility is increasingly under threat,” said Elias Haddad, a strategist at Brown Brothers Harriman in London, who says the dollar is vulnerable to more downside. Trump’s effort to pressure Powell and his colleagues to lower rates “undermines the Fed’s independence” while McEntarfer’s dismissal “risks damaging perception of US economic data integrity,” he said.

While investors have been positioning for Trump to appoint a more dovish Fed chair — betting on a faster pace of rate cuts from when Powell’s term ends next year — Kugler’s resignation brings forward the potential timeline. Trump’s nominee for the open governorship could move into the chairman role when Powell’s term expires in May.

An early announcement of the next Fed chief could create a “shadow chair” dynamic. The idea is that investors would listen more to the forward guidance of Trump’s pick to replace Powell rather than Powell himself, based on the premise that the former will soon be in charge.

What Bloomberg’s Strategists Say...

“There’s no positive way for markets to interpret the news that President Trump has fired the head of the Bureau of Labor Statistics — either US data has previously been distorted as Trump suggests, or the data reliability has been as good as achievable but is now politicized. Either way, future data releases have been undermined and there should be a much greater risk-premium for US assets.”

— Mark Cudmore, macro strategist. Click here for the full analysis

Derek Halpenny, a head of global markets research at MUFG in London, said that of the contenders to replace Powell subject to public speculation, National Economic Council Director Kevin Hassett would be “the worst pick for the US dollar given his close association with the President.” Treasury Secretary Scott Bessent would also be viewed negatively by investors due to his links to Trump, though less so than Hassett, Halpenny said.

Former Fed Governor Kevin Warsh as well as current Fed governors Christopher Waller and Michelle Bowman would be viewed more favorably due to their experience at the central bank, Halpenny said.

“Until we get an announcement, the appetite for buying back the dollar after Friday’s fall will be limited,” he said. A gauge of the greenback was little changed on Monday, having lost nearly 8% this year.

In any case, the Fed nomination is a risk event for markets during thinning August liquidity as investors go on vacation. Trump said Sunday he intends to announce Kugler and McEntarfer’s replacements in coming days.

“The replacement of both a Fed Governor and the BLS chief could ultimately impact the ease of funding the US twin deficits,” said a Deutsche Bank AG team led by Jim Reid. “This may hinder long-end rallies unless there is a significant economic slowdown.”