Explore how Trump’s critique of Fed Chair Powell influences the US dollar’s decline, impacting global markets and economic strategies.
The US dollar dipped to multi-year lows on Thursday as President Donald Trump renewed his criticism of Federal Reserve Chairman Jerome Powell, raising concerns about the future independence of the US central bank. By 11:30 AM Turkish time, the Dollar Index, which measures the greenback against six major currencies, had fallen 0.6%, reaching 96.682, the lowest point since early 2022.
Trump’s Criticism Sparks Dollar Decline
Fed Chair Powell reiterated his cautious approach during his two-day Congressional testimony, suggesting that interest rate cuts would be delayed until the inflationary effects of tariffs are better understood. He noted that tariffs could lead to price increases beyond a one-time rise.
President Trump responded with further criticism, labeling Powell as “terrible” for not enacting sharper interest rate cuts. Reports from the Wall Street Journal indicated that Trump was contemplating announcing a replacement for Powell by September or October, aiming to weaken his position despite his term not expiring until May 2026.
Trump stated, “I know who I’m going to pick, out of three or four people. Thank God he’s leaving soon, because I think he’s terrible.” Such actions could potentially undermine the Federal Reserve’s independence and erode confidence in the nation’s monetary policy.
ING analysts remarked in a note, “Powell remains a target of the Trump administration. With two members (Trump appointees Waller and Bowman) clearly opposed to a cautious/hawkish stance, markets may react quickly to weak US data with a dovish reassessment.”
Concurrently, reports that Trump might appoint a new Fed chair prematurely have further fueled dovish market expectations. The probability of a rate cut at the Fed’s next meeting in July has increased to 25%, compared to just 12% a week ago.
Euro Gains Momentum
In Europe, the EUR/USD rose by 0.4% to 1.1706, reaching its highest level since September 2021. ING commented, “The euro may have received marginal support from NATO’s agreement on the 5% defense spending target and Trump’s generally conciliatory stance towards allies (excluding Spain). However, in practice, EUR/USD remains largely influenced by the dollar.”
“Surpassing 1.170 could shift the target to 1.20, but reaching that level might require further deterioration in US-specific factors.” However, with Trump’s July 9 trade deals deadline approaching, the euro could still face challenges, especially if the EU faces criticism from the US president.
The latest German consumer confidence index for July fell to -20.3 points from a slightly revised -20.0 points in the previous month, indicating potential challenges ahead.
Meanwhile, GBP/USD rose by 0.6% to 1.3748, the highest level since January 2022, as investors questioned the dollar’s status as the dominant reserve currency.
Japanese Yen Strengthens
In Asia, the USD/JPY traded 0.9% lower at 143.97. The Japanese yen benefited from the dollar’s decline, with attention shifting to Friday’s Tokyo inflation data. This data could influence the Bank of Japan’s decision on interest rate hikes, as increasing price pressures have heightened expectations of an imminent rate increase.
The USD/CNY fell 0.1% to 7.1683, with the yuan reaching its strongest level against the dollar in seven months. The currency was buoyed by Chinese officials’ comments suggesting potential stimulus measures. Local media reported that China’s National Development and Reform Commission would announce a new package of consumer exchange incentives and subsidies in July, providing further support for spending.
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