Foreign Exchange Commentary

Summary

• The U.S. Dollar index is trading at 98.2 after Stephan Miran was named as the replacement Federal Reserve Governor after Treasury Secretary Scott Bessent declined the role.
• Christopher Waller has emerged as the favorite to succeed Federal Reserve Chair Jerome Powell.
• Fed funds futures suggested there is a 90% chance of an interest rate cut in September.
• The euro is poised to strengthen against the U.S. dollar in coming months.
• The Bank of England cut rates to 4% on a 5-4 vote, with another cut unlikely for the remainder of the year.
• India appears to be strengthening relationships with BRICs countries after 50% tariffs were imposed on it by the U.S.
• The Trump administration is placing tariffs on gold bars.
• The Swiss National Bank is exploring negative interest rates or intervention to weaken the Swiss franc.

Dollar Declines as Cuts are Priced in
The U.S. dollar continued to trend lower after a sharp decline on last Friday’s lackluster jobs report. With limited US economic data this week, the market narrative focused on President Trump’s firing of the Bureau of Labor Statistics (BLS) Chief Erika McEntarfer, which is causing concerns as investors worry about the effects of the politization of a non-partisan department. However, others are more optimistic that a fresh approach to the BLS will invite new methods of recording economic data as the BLS has historically relied on telephone surveys to record results. Regardless of who the next BLS chief is, there will be scrutiny over the data and the bureau.

President Trump also nominated his pick for the Federal Reserve Governor who will replace Adriana Kugler, after her surprise resignation. Stephen Miran, chair of the Council of Economic Advisors, will serve out the remainder of Kugler’s term which is set to expire Jan. 31^st, 2026, while Trump searches for a permanent replacement. Miran authored the essay Restructuring of the Global Trade System, which we analyzed here in March. Both Miran and the Trump administration believe that while the U.S. gains significant geopolitical leverage from its status as the global reserve currency, it pays for this advantage through weakened industrial competitiveness. To address this issue, Mr. Miran has proposed tariffs (or the threat of tariffs), reinforcing trading discipline with partners, opening markets for U.S. goods, and tactically weakening the dollar to raise export attractiveness.

Miran is expected to add to the dovish sentiment slowly starting to seep out of the Federal Reserve after Governor Michelle Bowman and Christopher Waller (the leading favorite to take the helm as Federal Reserve chair after Jerome Powell’s term ends in May 2026) dissented from the hold-consensus this past meeting. As with the BLS, there are concerns that Miran’s governorship will be a proxy for the wishes of the President. For now, there are still 2 interest-rate cuts expected this year with a 90% chance of a cut in September causing bearish sentiment for the U.S. dollar for the remainder of the year. At the time of this publishing, the U.S. Dollar Index (DXY) is trading at 98.21, up from the week low at 97.9 potentially from positive reactions surrounding Waller’s potential nomination. Next week’s Consumer Price Index (CPI) report will give further clarity on inflation and could certainly add to the dovish pivot of the Fed though a positive print may not be enough to prevent a September cut.

Bank of England’s Rate Cut
The Bank of England’s (BOE) controversial interest rate decision passed narrowly with a 5-4 split. The 25bps cut brings the BOE’s key rate to 4% with officials expecting a much slower rate cutting cycle moving forward, with none expected for the remainder of the year. One of the main causes of concern in the U.K. is the rebound of inflation from last year. After hitting as high as 10% in 2023, 2024 started off promising with the CPI print at 4.0% in January and getting down to 1.8% in September 2024. Since then, inflation has rebounded and is currently at 3.6%. The British pound, currently trading at a 2-week high of 1.3449 at the time of this writing, is reeling off a historic 3.8% currency depreciation after concerns over the UK’s fiscal health. High borrowing costs, weak economic data, and political turmoil have continuously affected the nation in the recent months with Q1 GDP for the U.K. at 0.7% and unemployment for June was sitting close to 4.5%.

U.S. and India’s Relationship Deteriorates
After initially raising tariff’s 25% on Indian goods after the U.S. and India failed to reach a trade deal, the Trump Administration doubled down and imposed 50% tariffs on India citing their purchases of Russian oil. This has been met with tremendous scrutiny from Narendra Modi’s administration who claim hypocrisy as the U.S and Europe continue to purchase commodities and energy from Russia. This abrupt deterioration in relations between the two countries was met by surprise as the two leaders had spent considerable time together with two meetings this year itself. In response, Modi is preparing to visit China for the first time in 7 years, had a “detailed phone call” with President Vladimir Putin who plans to visit him soon, and paused U.S. weapons purchases. The Indian rupee is down 3.6% since May against the U.S. dollar and was trading as low as 87.80 before the Reserve Bank of India intervened and stabilized rates with non-deliverable forwards.

Swiss Franc Remains Strong
Swiss president Karin Keller-Sutter flew to Washington on Thursday to meet with Trump and strike a trade deal between the U.S. and Switzerland but was denied a meeting. Like India, Switzerland has been subject to stark tariffs, with Swiss imports being taxed at 39%. To make matters more challenging, gold futures, which are typically backed by gold bars shipped from Switzerland to NYC among other trading hubs, are potentially going to be subject to tariffs on the underlying bars themselves. While many analysts expected that gold would be exempt from reciprocal tariffs, it now appears that 1-kilogram and 100-ounce gold bars will be subject to the levies. Gold is currently trading near all-time highs, at $3,398 per ounce. So far this year, the Swiss Franc has remained strong, up nearly 10% against the dollar much to the chagrin of Swiss officials. The Franc, trading at 0.8077 (Dollars per Franc) rising deflation risks in the country and decreasing the magnitude of competitiveness for Swiss firms abroad. As Switzerland regains its global safe-haven status, the Swiss National Bank remains cautious and is exploring negative interest rates or FX intervention in the coming months to weaken the franc.