Justice Department action weighs on U.S. currency
The U.S. dollar fell on Monday after the Department of Justice threatened to indict Federal Reserve Chair Jerome Powell over his testimony to Congress regarding cost overruns on a $2.5 billion renovation project at the Fed’s headquarters in Washington. The move raised fresh concerns about the independence of the U.S. central bank and the longer-term outlook for the dollar.
Powell said on Sunday that the Federal Reserve had received subpoenas last week related to comments he made last summer. He described the action as a “pretext” aimed at allowing the White House to exert greater influence over interest rate policy, which President Donald Trump has repeatedly urged to be cut sharply.
Political pressure adds uncertainty
The White House said Trump did not direct Justice Department officials to investigate Powell, but the episode has intensified debate over political interference in monetary policy. Investors fear that any erosion of central bank independence could undermine confidence in the U.S. dollar.
Trump is widely expected to replace Powell with a more dovish Fed chair when his term ends in May, though Powell could remain on the Fed’s board. Media reports said Trump is set to interview BlackRock bond chief Rick Rieder this week as a potential successor.
Dollar index retreats, euro and franc gain
The dollar index fell 0.37% to 98.87, erasing much of its early-year rebound. The euro rose 0.29% to $1.1671, while the Swiss franc was among the strongest performers, with the dollar weakening 0.54% against it.
Analysts said the subpoenas overshadowed broader geopolitical risks that had recently supported the dollar, including tensions involving Venezuela, Iran and renewed safe-haven demand.
Tariffs ruling and inflation data ahead
Markets are also watching for a U.S. Supreme Court ruling on the legality of Trump’s tariffs imposed under the International Emergency Economic Powers Act. A decision could come as soon as this week, adding another layer of uncertainty to the dollar’s outlook.
Meanwhile, investors are preparing for Tuesday’s U.S. consumer price inflation report, which could influence expectations for Federal Reserve rate cuts. Futures markets currently suggest the next rate reduction is unlikely before June.
Yen weakens despite broader dollar softness
Against the Japanese yen, the dollar strengthened 0.15% to 158.12, near a one-year high. Weak Japanese wage data and a dovish outlook for the Bank of Japan have pushed expectations for rate hikes further into the future, weighing on the yen.
Political developments in Japan, including the possibility of a snap election, have added to pressure on the currency.
