Nomura highlights that concerns are starting to grow on the Fed’s independence and if that continues, would represent a structural bearish factor against the dollar. As things stand, the greenback is already facing headwinds from the Fed poised to ease monetary policy, softer US growth momentum, and policy divergences with the likes of Europe and Japan.
As such, Nomura argues that the shift in dynamics at the central bank would compound the bearish elements for the dollar. If Cook is removed from her post and Miran replaces Kugler, Trump would eventually make 5 appointments of the 7 Fed governors should Powell also leave in May next year.
That will see heavy political influence exert its presence on the central bank with the Fed’s independence at stake. Nomura says that it could translate to higher long-end yields, weaker equities, and a weaker dollar as credibility on dealing with inflation is dealt a blow. As a reminder, that is one of the Fed’s dual mandates.
The firm notes that this continued development will see markets price in a greater risk premium against the dollar, adding to the broader downtrend that is already underway for the currency.
This article was written by Justin Low at investinglive.com.