Dollar Up In Spite of Trump’s Interference in Monetary Policy – Currency Thoughts
Dollar Up In Spite of Trump’s Interference in Monetary Policy
August 27, 2025
President Trump, who has been outspoken in demanding that the Federal Reserve cut its short-term interest rate substantially, is pursuing legal channels to fire Reserve Governor Lisa Cook. Market watchers have been surprised at how little this potentially huge policy change has impacted the dollar or equities, and that disconnection is being seen as a strong indication that the erosion of an independent U.S. monetary policy will continue largely unabated. Presidential meddling with Fed policy during the Nixon Administration and indirectly continued by the Carter Administration, which rhetorically gave a green light to dollar depreciation in 1977 and 1978, were critical factors in that era’s upward spike of inflation. Chronic inflation in Great Britain gave way to more stable prices when the government delegated interest rate decision-making to the Bank of England in May 1997. More recent examples correlating political interference in monetary policy with bouts of higher inflation include Turkey, Hungary and Russia.
The dollar rose overnight by 0.5% against the euro and 0.4% relative to the Japanese yen, Swiss franc, Australian dollar and sterling. Last Friday’s strong stock market rally was only slightly trimmed earlier this week, and the ten-year U.S. Treasury yield has hardly moved since Friday.
In other financial market action so far today, India’s stock market closed 1.0% lower after the U.S. tariff against that country was doubled to 50% in retribution against India’s continuing purchase of Russian oil. Share prices also dropped 1.8% in China and 1.3% in Hong Kong but rose 0.3% in Japan, Australia and South Korea. European stocks and the prices of both gold and oil are marginally softer. Bitcoin’s price dropped 0.5%.
Consumer confidence in Germany slipped more than expected to a 5-month low this month. French consumer confidence resumed its downturn, falling a point further to a 22-month low. Consumer sentiment in Finland and Slovakia printed at 2- and 17-month lows.
South Korean consumer confidence, which had improved sharply in July, gave back that increase almost entirely this month. But South Korean business sentiment ticked two points higher to a 2-month high.
A measure of investor sentiment toward Switzerland, whose 39% tariff on exports to the United States constitutes the highest one of any European economy, plunged to a 33-month low this month.
In Britain, the distributive trades index improved to a 3-month high in August but remained quite negative at -32. A separate U.K. indicator for shop prices posted a 0.9% year-on-year rise in June.
Sluggish growth ahead was suggested by the Westpac-compiled index of Australian economic indicators.
Japanese corporate service price inflation of 2.9% last month was its lowest in ten months.
A 1.7% year-on-year decrease in Chinese industrial profits during the first seven months of 2025 followed calendar year declines of 4.0% in 2022, 2.3% in 2023 and 3.3% in 2024.
U.S. data reported Tuesday highlighted a 2-month low in the Conference Board’s consumer confidence index to 97.4, which had been as higher as 112.8 last November. Durable goods fell 2.8% in July but not as steeply as analysts had feared. The Case-Shiller house price year-on-year advance of 2.1% was the smallest in almost two years, and the FHFA house price index also printed lower with a 2.6% gain from July 2024. Mortgage applications slid for a second straight week but by only 0.5%. The Richmond Fed manufacturing survey climbed 13 index points this month but at -7 was below zero for a sixth straight time.
Interest rates were left unchanged at the National Banks of Kyrgyzstan and Hungary. After cresting at 14.0% between March and November of 2022, the Kyrgyz central bank interest rate had been slashed by 500 basis points to 9.0% by May 2024 but then lifted earlier this summer to 9.25% at July’s policy review. Consumer price inflation in Kyrgyzstan reaccelerated from 3.8% in September 2024 to 9.4% this month, and economic growth has been robust this year. A comparatively stable currency has been a factor preventing a more substantial tightening of the interest rate thus far. In Hungary, where inflation is targeted at 2-4%, CPI inflation of 4.3% also exceeds the long-run objective. Hungary’s central bank interest rate had been as high as 13.0%, a level maintained between September 2022 and September 2023, but at 6.5% since a 25-basis point cut in September 2024 is now only half as much as the previous cyclical peak.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German and French consumer confidence, Lisa Cook, National Bank of Hungary, National Bank of Kyrgyzstan, tariff hike against India
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