What are the market implications of a possible early departure of Fed Chair Powell? It is an unlikely situation, however for an hour Wednesday afternoon it appeared very actual. It was initially reported {that a} letter had been ready by Trump and introduced to GOP policymakers, and at one level the White Home confirmed Trump was about to fireplace Powell. Shortly after, Trump mentioned it was ‘unlikely’ he would hearth Powell, ING’s FX analyst Chris Turner notes.
Probabilities of USD consolidation or slight re-appreciation
“In that hour, we noticed the response we’d have anticipated: a steepening within the US yield curve, and the greenback sharply decrease. Nonetheless, it by no means appeared like markets absolutely priced in Powell’s exit yesterday afternoon. Pricing for a September Fed reduce didn’t transcend 20bp, and EUR/USD did not get past 1.1720 even earlier than Trump’s denial precipitated an unwinding of all market strikes.”
“It’s a transparent symptom of the resistance developed by markets for the rollercoaster of headlines which have characterised Trump’s time period to this point. After yesterday’s scare, the bar can be even larger to take Fed independence threats significantly.”
“On the macro facet, PPI figures got here in beneath expectations yesterday, however this failed to clean away Tuesday’s CPI actuality examine, which is retaining markets from pricing in additional than 15bp for the Fed’s September assembly. At this time’s US calendar highlights are retail gross sales knowledge for June and TIC knowledge for Could. We’ll look intently on the latter to see if there may be any laborious proof of a considerable rotation away from US Treasuries, which might feed into the longer-term bearish USD argument. However for the close to time period, we nonetheless just like the possibilities of greenback consolidation or slight re-appreciation.”
