US Dollar Index (DXY) drifts lower to 98.50 amid speculation about the next Fed Chair

• The Dollar extends losses on Wednesday with all eyes on the Fed Chair nominee.
• Trump is expected to nominate a loyalist seeking higher support for his lower rates agenda.
• Soft US data has brought stagflation concerns back to the table.

The US Dollar is trading lower on Wednesday, weighed by a combination of renewed stagflation concerns following weak US macroeconomic data and investors' caution, awaiting Trump's nominee for the Fed Chair.

The US President narrowed down the number of candidates to four after the rejection of Treasury Secretary Scott Bessent. The best positioned are the National Economic Council Director, Kevin Hassett, and former Governor Kevin Warsh, both proponents of an easier monetary policy.

Governour Crhistopher Waller and David Malpass, a former Trump administration official and ex-president of the World Bank, complete the list.

Investors are reluctant to buy the US Dollar on Wednesday, awaiting Trump's decision, which, he said, will be announced shortly. Trumpo will also appoint the replacement for the resigning board member Kugler, also highly likely a loyal dove, which might undermine the market's confidence in the central bank's independence.

All this comes in the context of renewed concerns about stagflation, following an unexpectedly weak US Services PMI report on Tuesday. The data revealed that activity stalled in July, with employment declining, export orders falling, and prices rising.

The ISM paints a picture of a stagflationary economy that sets a dilemma for Federal Reserve policymakers and that triggered a significant decline in the US Dollar when similar concerns appeared earlier in the year.