Threats to the Greenback: Trump's Potential Early Move on Powell's Fed Replacement
U.S. currency plummets to new lows amid Trump's discussions challenging Federal Reserve's credibility.
So, the buck's seen a downturn, dipping to a 3.5-year low versus the euro, thanks to fears about the independence of the U.S. Federal Reserve. And the source of this uncertainty? You guessed it - the White House.
According to the Wall Street Journal, the machinations of Donald Trump have been causing waves in the financial world. Seems he's been toying with the idea of replacing Federal Reserve Chair Jerome Powell by September or October, aiming to undermine his position. This move, if it happens, could raise question marks about the Fed's independence and spook investors.
Kieran Williams, head of Asia FX at InTouch Capital Markets, had this to say: "Markets aren't too happy about an early call on Powell's successor, especially if it's politically motivated. The move could shake credibility and recalibrate rate expectations, calling for a rethink of dollar positioning."
Trump has been less than impressed with Powell's performance, calling him "terrible" for not lowering interest rates more. Powell, on the other hand, has been warning the Senate about the risks presented by Trump's trade tactics, which could jeopardize the Fed's inflation target.
This has stirred up some speculation in the markets, with the chance of a rate cut in July jumping to 25% from just 12% a week ago. Not only that, but traders are pricing in 64 basis points worth of cuts by the end of the year - a significant shift.
This newfound faith in a rate cut has sent the euro soaring to its highest level since October 2021 at $1.1687. Sterling is also up, reaching its highest since January 2022, while the dollar has hit a 10-year low against the Swiss franc. The dollar's even losing ground against the yen, slipping to 144.89.
Trump's haphazard trade policies are also back in the spotlight, as the countdown to his July 9 deadline for trade deals continues. JPMorgan has warned that the tariff hit would slow U.S. economic growth and jack up inflation, increasing the likelihood of a recession by 40%.
This turmoil has many pondering the end of the dollar's status as the undisputed reserve currency. The euro, in particular, seems to be benefiting from this uncertainty, as investors bet on Europe's growing economic clout and massive investment in defence and infrastructure projects.
In the realm of finance and business, the potential early replacement of Federal Reserve Chair Jerome Powell, as speculated by the Wall Street Journal, could lead to a reevaluation of dollar positioning due to concerns about political motives and the Fed's independence (Kieran Williams, head of Asia FX at InTouch Capital Markets). Meanwhile, in the broader sphere of general-news and politics, the ongoing trade policies of President Trump and the resulting turmoil have sparked debates about the future of the dollar and the potential rise of the euro as a contender for the status of the undisputed reserve currency, given Europe's growing economic strength and investment in infrastructure projects.
