Fed investigation negatively impacts Dollar image

The U.S. Dollar is on retreat as markets react negatively to the news that the Federal Reserve is being investigated by the Department of Justice, a move that is perceived as a way to pressure the Fed’s independence and have its authority scrutinized.

The week is not starting off well for the Buck’s image as a staple of reliability while Gold and the Swiss Franc are sought out as safe-haven assets. The Buck is experiencing its biggest drop since the year started while long-term treasury notes go up in yield with the 30-year rate up to 4.85%, a sign that investors and traders predict inflation to be reignited by loose monetary policy.

Equities are not looking enthused by the reports that instigate an investigation with S&P 500 contracts down over half a percent and Nasdaq’s down 0.7%. In a video last night, the Fed’s Chairman Jerome Powell explained the subpoenas investigating something related to Fed building renovations but stated this all stemmed from the reluctance of Fed members to act on interest rates according to the White House’s agenda. At the time of writing, headlines pointed at Congress members from both parties already bringing questions to the DOJ over the issue which is helping keep FX and market moves cooled off.

There will be a variety of economic indicators released throughout the week with inflation taking center stage in the middle as Consumer Price Index comes out tomorrow followed by Producers Price Index on Wednesday. Other geopolitical matters have been overshadowed at the moment with the spotlight on domestic implications over Federal Reserve autonomy going forward.

What to Watch This Week…

US CPI, Tomorrow
US PPI, Wednesday
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The complete Economic Calendar can be found here .

EUR ⇑

The Euro is overcoming its bad run thus far into the fresh new year, rising against the Buck as a result of the Fed shocker after having dipped to its weakest levels since the first week of December. There will not be a ton of Euro-zone data for the week that can reshape the Euro’s trajectory, but attention will be paid to Industrial Production out on Thursday. Next week, there will be elections for the European Central Bank’s Vice-Presidency and candidates are already weighing in on the Fed move. Estonian ECB member Madis Muller is in the running for VP, which would replace Luis de Guindos as the number 2 most important authority figure. Muller said he see the Fed investigation as “a political move” while pledging to maintain a conservative monetary rate policy if elected.

MXN ⇑

The Mexican Peso is up by half a percent against the U.S. Dollar for the year, continuing the trend of strengthening as headlines focus on what ails the Buck. Economic activity in Mexico has been slowing down, but the carry-trade appeal keeps MXN a favored asset as the U.S. looks busy on many fronts. Banxico, the central bank, will not meet until February 5^th, when we will know if there is appetite for lowering borrowing costs and perhaps accelerating the pace from 25 basis points to 50 basis points. Only item to watch this week will be October’s Gross Fixed Investment out Thursday.

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