The US Dollar Index (DXY), which measures the value of the US dollar (USD) against six major currencies, stabilized after recovering from a daily decline and traded around 98.40 during the European session on Tuesday (August 26th). The US dollar is likely to strengthen further as rising US yields can attract foreign capital to US bonds and other USD-denominated assets. The yields on 2-year and 10-year US Treasury bonds were at 3.70% and 4.30%, respectively, at the time of writing.

However, the US dollar weakened as comments by US President Donald Trump raised concerns about the independence of the Federal Reserve (Fed). Trump posted a letter on social media on Tuesday morning, stating that he was removing Cook from his position on the Fed's board of directors. However, Cook said that he would not resign and would continue to carry out his duties, according to Reuters.

Fed Governor Cook's departure will allow Trump to appoint a replacement, giving him greater control over Fed policy. Furthermore, Fed Chairman Jerome Powell said at the Jackson Hole symposium last week that risks to the labor market were increasing, but also noted that inflation remained a threat and that policy decisions were not final. Traders will likely await the release of the US second-quarter annualized Gross Domestic Product (Q2) data and the July Personal Consumption Expenditures Price Index (PSI), the Fed's preferred inflation measure.

Trump also threatened to impose a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the United States. He further warned of potential additional tariffs and export restrictions on advanced technology and semiconductors in retaliation for a digital services tax targeting American tech companies. (alg)

Source: Fxstreet