Sterling ticks up against dollar after Trump's Fed salvo

By Jaspreet Kalra

Aug 26 (Reuters) - Sterling was modestly higher against the dollar on Tuesday after U.S. President Donald Trump's announcement that he was firing Federal Reserve Governor Lisa Cook dragged down the dollar over concerns about the central bank's independence.

Sterling GBP=D3 rose as much as 0.3% against the dollar in immediate reaction to Trump's announcement before paring gains to last trade up 0.1% at $1.3466.

"The renewed downward pressure on short-term U.S. yields combined with the increased threat to the Fed’s independence are both creating a negative backdrop for the U.S. dollar supporting our outlook for further weakness in the year ahead," Lee Hardman, a senior currency analyst at MUFG Bank, said in a note.

The make or break point for possible political influence over the Federal Reserve's monetary policy will depend on who Trump would choose to nominate to the Fed's board, said Samy Chaar, chief economist at Lombard Odier.

Cook, who has been accused of alleged improprieties in obtaining mortgage loans, said of Trump through lawyers that "no causes exist under the law, and he has no authority" to remove her from her job.

Meanwhile, political developments in France will also be in focus for investors with the country's minority government looking increasingly likely to be ousted next month.

Reassessment of long euro exposure among investors on the back of political developments in France could help sterling gain on the single currency this week, Chris Turner, global head of markets at ING, said in a note.

On Tuesday, sterling was flat against the euro at 86.37 pence to the common currency EURGBP=D3.

Data showed that British shop prices in August rose by the most since March last year, potentially adding to the Bank of England's worries about how long the country's high inflation problem is likely to last.

Money markets do not fully expect the Bank of England to cut interest rates again until April 2026, according to LSEG data.