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The Dollar looks relatively well supported, despite Trump's ongoing efforts to meddle with the Federal Reserve.
The Pound to Dollar exchange rate (GBP/USD) looks set to remain under near-term pressure, with a test of 1.34 possible again this week.
Monday saw the U.S. Dollar advance against the major currencies and recover more than half of Friday's losses, which were suffered in the wake of U.S. Federal Reserve Chair Jerome Powell's address to a conference in Jackson Hole.
Here, he laid the groundwork for a September interest rate cut, confirmation of which triggered a lowering of U.S. interest rate expectations and weighed on the Dollar.
He remarked that "the balance of risks appears to be shifting" away from inflation towards unemployment, helping the Pound to Dollar exchange rate rise and close the day 0.80% higher at 1.3520.
However, there was no follow-through strength on Monday and the pair has since retraced much of the move, which speaks of a general malaise and the evolving formation of a short-term downtrend in GBP/USD.
With the pair now below the nine-day exponential moving average again, the potential for a test of 1.34 in the coming days is elevated.
Interestingly, the Dollar seems relatively unfazed by news overnight U.S. President Donald Trump will try and fire Fed Governor Lisa Cook, who is accused of falsifying a mortgage application request.
Cook is fighting the move, saying, "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so".
"So this could turn into the most market-relevant test so far of Trump's ability to fire officials of independent government agencies," says Peter Sidorov, a strategist at Deutsche Bank.
If Trump were to succeed, he would be able to replace Cook with another friendly Governor who would favour cutting interest rates in order to please the President.
"Were Cook's dismissal to hold, it would open up another seat for Trump to fill on the seven-person Federal Reserve Board. With Stephen Miran nominated for the seat recently vacated by Governor Kugler and with Governors Waller and Bowman dissenting in favour of a rate cut at the July meeting, this would increase the prospects of a dovish majority on the Board," says Sidorov.
A Fed that is more inclined to cut interest rates would naturally weigh on the Dollar. Currency strategists warn that Trump's efforts to reshape the Fed in his image risk eroding institutional credibility, which is also a key tenet of U.S. Dollar demand.
Yet, for now at least, the Dollar is riding this risk out and looks relatively well supported and we will respect short-term indicators that point to a generally soft underbelly in GBP/USD trade.
Looking further ahead, expect market volumes to pick up again as the Northern Hemisphere ends its summer holiday season.
Numerous economists we follow maintain a view that the Dollar is merely in a consolidative phase ahead of the next wave of weakness, and we would therefore not be surprised to see the broader GBP/USD uptrend restart at some point in the coming weeks.
"We see further potential for gains from here," says Patrick Ernst, FX Strategist at UBS Switzerland AG. "We leave our GBPUSD forecasts largely unchanged and add a new 1.40 target for our September 2026 outlook."