First Light News: USD Remains On the Back Foot

Trump to Name Fed Chair Candidate Earlier Than Expected?

US President Donald Trump has floated the idea of naming Fed Chair Jerome Powell’s successor earlier than expected; for context, Powell’s term expires in May 2026. As you can imagine, announcing a new Fed Chair candidate 11 months before Powell’s term in office ends could almost create a ‘shadow’ Fed Chair. Given that their approach and views might differ significantly from Powell’s, it could continue to unsettle the markets and pressure the USD. As I noted in yesterday’s briefing, I remain USD bearish until reaching approximately 96.50 – a key monthly channel support.

Several Fed officials also made headlines this week, particularly Fed Governors Christopher Waller and Michelle Bowman, who, incidentally, were appointed by Trump. Both Waller and Bowman have advocated for lowering the funds target range as soon as next month’s meeting, putting them at odds with Powell, who maintains that the economy remains in a good place and continues to adopt a ‘wait-and-see’ stance amid global economic uncertainty. We also recently had Mary Daly, the President of the Fed Bank of San Francisco, hit the wires in an interview with Bloomberg. Daly largely stuck to the script and commented that her outlook for the fall looks promising for a rate cut.

Overall, however, several other Fed members have sided with Powell, opting for a cautious, patient approach. Markets continue to price in 63 basis points (bps) worth of cuts for the year, with September’s meeting eyed for a 25 bp cut, followed by another reduction in October or December, which is largely in line with views from the majority of Fed officials right now, I believe.

I do not see a rate cut materialising at the July meeting; Powell’s hands are essentially tied at least until after 9 July tariff deadline; I cannot see him making any changes in the absence of some indication of how the tariffs are going to interplay following the deadline, hence, as I noted above, I remain a USD bear.

Macro Highlights

Thursday’s docket revealed that US continuing claims jumped to their highest level since late 2021 at 1.974 million for the week ending 14 June, up from 1.954 million previously and north of 1.950 million expected. This shows that nearly 2 million Americans are struggling to find employment, and companies are pulling back on hiring, as highlighted in this week’s consumer confidence report from the Conference Board.

Despite this, the labour market remains largely stable. Initial jobless claims for the week ending 21 June fell to 236,000, down from 246,000 the prior week and below expectations of 243,000.

The final estimate of Q1 25 GDP data (Gross Domestic Product) also released yesterday showed a downwardly revised reading of -0.5%, from -0.2% in the second estimate released last month. This is also lower from the 2.4% gain reported in Q4 24.

The day ahead will primarily centre on the May PCE inflation data (Personal Consumption Expenditure), potentially providing a clearer idea about where the Fed is headed with rates. Yet, many desks are not expecting to see the full impact of Trump’s tariffs until reports released later in the year.

Economists expect to see a mild tick higher in the year-on-year (YY) headline print, having risen by 2.3% up from 2.1% in April, with the YY core measure also forecast to have increased by 2.6% up from 2.5%. Any downside surprise in the PCE data today could add to USD downside and fuel rate-cut bets.

Written by FP Markets Chief Market Analyst Aaron Hill