US Dollar Index advances to near 98.50 despite worries over Fed independence

• The US Dollar Index rises ahead of looming US economic data later in the week.
• Traders adopt caution due to rising concerns over Fed independence.
• Fed Governor Lisa Cook's exit may boost the odds of earlier rate cuts.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is recovering its recent losses and trading around 98.50 during the Asian hours on Wednesday. Traders await the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge.

However, the upside of the US Dollar could be limited as traders remain cautious amid rising Fed concerns and the prospect of a more dovish Fed. US President Donald Trump announced early Tuesday that he was removing Fed Governor Lisa Cook from her position on the Fed's board of directors. Trump also said that he was ready for a legal fight with Cook over falsified mortgage documents.

Trump has already nominated White House economist Stephen Miran to a temporary seat that expires in January and has suggested Miran could also be in the running for Cook's position. Meanwhile, David Malpass, former World Bank president, is considered another potential candidate, per the Wall Street Journal.

The exit of Fed Governor Cook may increase the chances of earlier interest rate cuts, given Trump's ongoing pressure on the central bank to reduce borrowing costs. Traders are now pricing in more than 87% odds for a cut of at least a quarter-point at the Fed's September meeting, up from 84% previous day, according to the CME FedWatch tool.