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The US dollar strengthened on Thursday and continued to recover from yesterday’s pullback, as investors reacted to President Trump’s clarification that he is “highly unlikely” to dismiss Federal Reserve Chair Jerome Powell.
The statement helped calm markets after intense speculation the previous day over Powell’s tenure, which had briefly unsettled the greenback and triggered volatility in the markets.
While Trump reiterated criticism of Powell and left the door open to a potential resignation, the retreat from a confrontational stance was enough to restore some confidence in the markets.
Attention now shifts to the Fed’s next steps, particularly in light of recent inflation data showing some divergence between consumer and producer prices.
CPI data showed an increase, although it was softer than expected, while the PPI data declined. Treasury yields rose across the curve, with the 10-year note climbing back to around 4.48% as concerns over inflation and political tensions could persist. As a result, any erosion in central bank independence could eventually translate into a higher risk premium, lifting yields.
Looking ahead, markets await retail sales data due later today. A strong print could reinforce expectations of no change in interest rates, while weaker figures may revive calls for more aggressive easing and weigh both on the dollar and yields.
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