US President Donald Trump has recently dismissed Federal Reserve (Fed) Governor Lisa Cook over allegations of mortgage fraud. This unprecedented move is likely to weaken the American dollar against most financial instruments in the medium term.
There are several reasons why the US currency will be under pressure. First, Trump’s actions show political impact on the Fed’s decisions and pose a threat to its independence. Nobody is a stranger to unintentional mistakes, including the central bank’s officials. However, the case against Lisa Cook seems to be a stretch, which is being used as a pretext to remove one of the Fed’s key members and pressure others. Trump's dismissal of Cook, following his relentless attempts to fire Chairman Jerome Powell, once more calls into question the regulator's autonomy and undermines its ability to conduct impartial monetary policy, free from political influence. This situation further erodes the already shaken trust of investors in the US financial system, promoting capital outflows from the dollar.
Besides, it is highly likely that Cook's successor will be a politician with a more dovish stance, who will insist on further interest rate cuts. This, in turn, will also weaken the American currency.
In the medium term, the dollar could drop against safe-haven assets, such as gold, Bitcoin, and the Japanese yen. As the chart shows, the precious metal is poised to retest its all-time highs set in mid-May and mid-July.
The overall recommendation is to buy gold. Profits should be taken at the level of $3,470. Stop Loss could be set at $3,305.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
