The US Dollar (USD) gains positive traction on Thursday, recovering from a brief wobble late Wednesday after reports emerged that US President Donald Trump was considering firing Federal Reserve (Fed) Chair Jerome Powell. Market tensions eased after Trump walked back the threat, stating it was "highly unlikely" that he would dismiss Powell. The Greenback also finds support from stronger-than-expected Retail Sales data, which highlights resilient consumer spending and reduces the likelihood of near-term Fed rate cuts.

The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, is holding steady as upbeat economic data keeps rate cut hopes in check. After reaching a high of 98.93 earlier in the day, the index is easing slightly to trade around 98.63, though it remains comfortably in positive territory, up 0.33% on the day.

Latest US economic data offered further evidence of resilient consumer demand and labor market strength. Retail Sales rose 0.6% MoM in June, well above the 0.1% forecast, rebounding from May's sharp 0.9% drop. Core Retail Sales, which exclude autos and gas, also climbed 0.5%, up from 0.2% previously. Initial Jobless Claims fell to 221,000 last week, below the expected 235,000, signaling ongoing tightness in the labor market. Meanwhile, the Philadelphia Fed Manufacturing Index surprised to the upside, surging to 15.9 in July from -4.0 in June, far exceeding market expectations of -1.

Political interference in the Federal Reserve can create serious problems for financial markets. If Powell were removed, it could shake confidence in the Fed's independence. A new chair might take a different approach to interest rates, possibly cutting them faster. This can shake confidence in the US Dollar and lead to higher volatility in Stocks and Bonds. Several top Wall Street executives have warned that if the Fed's independence is weakened, it could harm the US economy in the long run and erode the US Dollar's status as the world's reserve currency.

While recent Consumer Price Index (CPI) and Producer Price Index (PPI) figures have shown signs of cooling, with June's consumer prices rising at a slower pace and producer prices coming in flat month-over-month, the broader pricing trend remains sticky. Additionally, several Fed officials maintained a cautious tone on Wednesday, citing rising inflation risks tied to recent trade tariffs. This gives the Fed reason to hold off on rate cuts for now.

Source: Fxstreet