Trump’s attacks on Jerome Powell and hints at replacing him unsettle markets
The U.S. dollar is in sharp decline, hitting its lowest level in more than three years as investor confidence erodes amid renewed concerns over the Federal Reserve’s independence. President Donald Trump’s latest verbal assault on Fed Chair Jerome Powell — calling him “terrible” — has intensified market anxiety, especially with speculation mounting that Trump may replace him with a more compliant figure.
The greenback has now fallen 10% year-to-date, on track for its worst performance since 2003. A basket of major global currencies is rising against it, with the euro now pushing toward $1.20. This latest retreat comes despite a temporary bump earlier in the week from safe-haven flows linked to Middle East tensions.
Markets brace for politically driven rate cuts
Traders are pricing in a 25% chance of a rate cut at the Fed’s July meeting, up from just 12.5% a week ago. The shift follows dovish remarks from Fed Governor Michelle Bowman — a Trump appointee and now the Fed’s top banking supervisor — who suggested the time for cuts is drawing closer. Her comments, combined with political pressure from the White House, have fueled fears that the central bank’s decisions are increasingly being influenced by politics rather than economic fundamentals.
“We are short the dollar in this environment,” said Kaspar Hense of RBC BlueBay Asset Management. “There’s an erosion of institutions that’s not fully priced in yet.” He added that a Trump-backed candidate such as Kevin Hassett or Treasury Secretary Scott Bessent could trigger further volatility if appointed as Fed chair.
International confidence in dollar and Fed wavers
Reports suggest that European Central Bank regulators are already stress-testing their exposure to U.S. dollars, wary of being cut off from Fed liquidity under a more unpredictable administration. Meanwhile, in Germany, concerns about dollar reliability have reignited calls to repatriate some of the Bundesbank’s gold reserves stored in the U.S.
According to a recent OMFIF survey, 70% of central bank reserve managers now view the U.S. political climate as a deterrent to holding dollar assets — more than double the proportion a year ago. The result reflects rising doubts over the stability and credibility of American institutions, particularly the Federal Reserve.
Safe-haven status in doubt
Even amid geopolitical unrest, such as the Israel-Iran ceasefire and oil price swings, the dollar has failed to regain its traditional safe-haven appeal. “The dollar’s muted reaction to oil volatility is another sign that its reputation as a safe-haven asset is slipping,” noted Seema Shah of Principal Asset Management.
With the U.S. political environment becoming a major risk factor, analysts are reworking their near-term currency forecasts. ING now sees $1.20 for the euro as realistic, contingent on further deterioration in dollar sentiment.
