USD/CAD extends losses below 1.3700 on broad-based US Dokllkar weakness

• - The US Dollar extends its reversal from Monday's high, crushed by increasing concerns about the Fed's independence.
• Trump attacked Fed Chairman Powell again and suggested an early pick of his replacement.
• -The Canadian Dollar appreciated 0.5% so far this week, despite the headwinds from lower Oil prices.
  

The US Dollar has reversed Wednesday's mild recovery and is accelerating its downtrend on Thursday as Trump's attacks on the Fed's independence and reviving fears that unilateral trade tariffs might lead to stagflation are crushing confidence in the US Dollar.

US President Trump called Fed Chair President names and weighed the possibility of an early appointment of his successor, an unprecedented action that would erode the credibility of the central bank. The market has reacted by selling the US Dollar heavily.

These comments come after the Fed President maintained his cautious stance towards interest rate cuts as he said the bank is in a good position to handle a likely increase in inflation, as the impact of tariffs filters into the economy.

Hopes of Fed cuts and fears of stagflation are hurting the USD

The pressures on the central bank, however, coupled with recent comments from Fed officials advocating for a less restrictive monetary policy, are boosting hopes for a rate cut in the coming months. The CME Fed Watch tool is pricing a 24% chance of a cut in July and 90% in September, up from 14% and about 65% in the previous week.

Beyond that, the lack of progress in the deals with trade partners is getting investors increasingly uneasy as the June 9 deadline approaches. A report from JP Morgan has warned about a potential stagflationary effect from tariffs that has increased the chances of a recession in the second half of the year to 40%

In this context, the Canadian Dollar has kept appreciating, with the USD/CAD nearly 0.5% lower in the week despite a more than 16% decline in Oil prices, which is Canada's main export.