Trump's pressure on the Fed knocks the dollar - Powell's possible replacement "rocks" markets and strengthens the euro
The dollar fell to multi-year lows against the euro and Swiss franc on Thursday as concerns about the independence of the U.S. Federal Reserve dented confidence in the stability of the country's monetary policy.
According to a Wall Street Journal report, US President Donald Trump has toyed with the idea of replacing Federal Reserve Chairman Jerome Powell by September or October.
"Markets are expected to be rattled by any early move to name Powell's successor, especially if the decision appears politically motivated," economists say.
"The move would raise questions about the Federal Reserve's independence and potentially undermine credibility. This would recalibrate interest rate expectations and trigger a reassessment of the dollar's positioning," they explain.
A day earlier, Trump continued to criticize Powell for not significantly lowering interest rates, while the Federal Reserve Chairman told the Senate that caution was needed, as the President's tariff plans posed a risk to inflation.
Markets have increased the probability of a rate cut at the Federal Reserve's next meeting in July to 25%, from just 12% a week ago, and are forecasting a 64 basis point cut by the end of the year, from about 46 basis points last week.
However, for now, the dollar continues to be under pressure, while the euro gained 0.4% to reach $1.1710, its highest level since September 2021.
The euro has been a major beneficiary of this situation, with investors also hoping that massive new investments in European defense and infrastructure will boost economic growth across the continent.
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