The dollar fell versus the euro and pound on Tuesday (Aug 21) after US President Donald Trump hit out at the Federal Reserve's interest rate rises, accusing it of not backing his economic plan, while most equity markets climbed looking ahead to China-US trade talks.
The greenback has been on the ascent in recent months as USA borrowing costs have gone up and the economy improves but it stumbled after Trump's latest criticism of the central bank.
The president told Reuters on Monday that he wasn't "thrilled," this time singling out Federal Reserve Chairman Jerome Powell. "I think on this one the market will come round again and the dollar bounces back, but nonetheless, it does appear the market is anxious that the president will exert influence on Fed policy".
He said the Fed was designed so that it would be accountable to policy makers and the public, but it was also created to be somewhat independent from jawboning from the White House. The Trump administration has raised tariffs on imports from a range of countries, including China and members of the European Union, triggering retaliatory tariffs on USA exports.
Since Trump took office, the Fed has raised rates five times, including twice this year under Powell.
The U.S. dollar was trading lower against other major currencies following Trump's comments. The president publicly questioned the interest-rate hikes in July.
At the meeting ended August 1, the Fed left interest rates unchanged as expected.
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Trump claimed during his speech that Powell is a fan of "cheap money" yet continues to raise rates.
Kohn said he didn't think Powell or the Fed would change their course because of Trump's remarks.
The central bank is created to be independent from political interference. In a confirmation hearing past year, shortly after Mr. Trump nominated him to the position, he told senators he expected the Fed to continue raising interest rates in the near term.
"I'm very concerned, especially given this very divisive and highly politicised environment, that bringing the Fed into that environment could complicate the Fed's communications [to the public], its support in the Congress and among the American people", said Donald L Kohn, who spent 40 years at the Fed and retired as its vice chairman in 2010.
"I am not happy about it".
The criticism comes after a private Republican fundraiser on Friday, during which Trump reportedly attacked Powell's interest-rate hikes.
"We're going to do our business in a way that's strictly non-political, without taking political issues into consideration, and that carries out the mandate Congress has given us", he said. The president does choose members of the policy-setting Fed Board, and in addition to Powell, he has appointed one Fed governor and nominated three others. "I'll let you know in seven years".