July 17, 2025

“Volatility surged and the dollar fell dramatically yesterday as rumours swirled about Trump removing the chair of the Federal Reserve, before recovering overnight as the US president assured that it was not his plan. Today the focus shifts to US retail sales.”

Sam Cornford – Head of Trading

USD

Yesterday’s session was dramatic – the dollar dropped almost 1.5% as headlines circulated about Trump being likely to fire Fed Chair Powell after waving a copy of a draft firing letter in front of lawmakers the day before. That move has been almost completely unwound, however, after the president affirmed in a TV interview that he was ‘not planning’ to sack him after all. We know by now that Trump is – to say the least – unhappy about Powell’s unwillingness to cut rates, but the market has mostly been quite calm about the idea that he would wait until May 2026 when his term is up. The law also does not permit Trump to remove the head of the Fed simply because he disagrees with current monetary policy – it would probably take some creative methods or a loophole, if possible at all. As yesterday’s move illustrated, however, there is a lot at stake in this. Such a flagrant attack on the Fed’s independence would significantly undermine the appeal of US assets and is potentially the biggest risk to the dollar right now. The 1.4% drop came as markets appeared to only partially price in the possibility of his firing – the US yield curve steepened to some extent (assuming that rates would be cut more quickly in the near term but would need to be higher in the longer term to compensate), but pricing for a cut in July or September increased only slightly.

That drama seems to be over for now, though, and Trump will take note of the market’s disapproval. Today’s focus will be on the retail sales and unemployment claims data this afternoon, both of which are expected to be relatively mild.

GBP

Wage and payroll data from the UK has been a mild positive for the recently battered pound this morning. Firstly, the 109K fall in payrolls seen in May was in fact revised considerably, to only a 25K contraction. The -41K June figure is disappointing and reaffirms the weakening trend in the labour market, but there will be hope that this gets revised, too. Ex bonus wage growth somehow remains high, however, at 5.0%. The Bank of England is banking on this falling considerably towards the end of the year, but right now it stinks of a stagflationary scenario for the UK economy. Sterling’s sensitivity to risk was on show during the Powell drama yesterday, with GBP/EUR dropping 0.6% during the brief panic episode.

EUR

EURUSD remains a US-driven pair for now, with budget discussions in the EU struggling to grab the headlines as the market focuses on trade and the Federal Reserve. The euro once again stood out as a safe haven currency as investors fled the dollar yesterday, but it has given up the vast majority of those gains since Trump’s later comments soothed investors’ worries about Powell. The only data today is the final CPI inflation print for June, which first printed at 2.3%, and we get a speech from Villeroy at the ECB.

Markets

Equities saw a similarly wild ride yesterday, diving and subsequently recovering as panic about Powell’s employment came and went. Futures for the major indexes are looking positive across the globe this morning.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth & Payrolls
2:30pm: US Retail Sales & Jobless Claims

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