The dollar fell along with 10-year Treasury bonds and stock futures as investors weighed the risks of Powell’s sack and its impact on the world’s largest economy. Sales intensified after Trump studied the matter in a speech Friday after a report said the president was exploring such a move.
Powell’s dismissal is a new blow to U.S. assets, with aggressive trade tariffs on recession concerns and raising doubts about the status of Treasury bonds as a preferred paradise. Trump said cheap currencies will make U.S. products more competitive, thereby increasing pressure on the dollar.
“Frankly, firing Powell will continue faith,” said Christopher Huang, strategist at Overseas Washington Bank. “If it is raised to question the Fed’s credibility, it could seriously undermine confidence in the dollar.”
Bloomberg Dollar’s spot index fell to its lowest level since January 2024. In holiday trading, the yen rose to its last level in September, while the euro rose to its highest in three years.
“We believe the weakness of the dollar will continue,” won Thin by the head of global markets at Brown Brothers Harriman & Co. “The attack on Fed independence is intensifying. Acknowledging this is being studied should be taken seriously and negatively evaluated.”
According to traders familiar with the trade, those who sold the dollar on Monday included several hedge funds, who were asked not to be identified because they had no right to speak publicly.
Hedge funds are now the least bullish for Greenguard since October, data compiled by the Commodity Futures Trading Commission shows. While Powell’s headlines certainly didn’t help, others say the growing global trade war could continue to be the main driver of dollar trading.
“The independence of central banks is so valuable – if lost, it’s not taken for granted and it’s hard to win,” said Will Compernolle, macro strategist at FHN Financial in Chicago. “His threat to Powell has not helped foreign investors’ confidence in U.S. assets, but I still think tariff updates are the main driver.”
“As usual, Trump is hard to predict, but last week’s U.S.-China tariff headlines were relatively quiet, indicating that the market could remain in Trump’s hands,” said Maximillian Lin, strategist at the Canadian Imperial Commercial Bank. “If that’s true, it should probably be extended to Powell’s job security, too.”
Monday’s sales were not limited to green. U.S. stock futures fell as much as 1%, with a benchmark of 10-year government bond yields rising by two basis points.
The Treasury curve turns the situation, with two-year notes surpassing other tenors in speculation that the removal of the Fed chair will pave the way for more rate cuts.
The prospect of reducing the rate leads to a steep yield curve in the nearest. Investors demanded an additional rate of return on owning 30-year souvenirs over a two-year period of nine consecutive weeks, a continuous record since Bloomberg began collated data in 1992. A longer end point is also oppressed when hedge funds are speculating that they are unwilling to trade in fixed leverage.
Meanwhile, warnings from Wall Street stock strategists pile up as Trump’s trade war undermines the outlook for U.S. economic growth and revenue. Citigroup Inc. strategists lowered their perception of U.S. stocks last week, saying the cracks of “American exceptionalism” will continue. They joined companies such as Bank of America and Blackrock Inc. and were shocked by the stock in recent days.
BloombergAmid all the worries, if Trump can actually hand over Powell, market participants are thinking.
Legal scholars say the president cannot easily fire the Fed chairman. Article 10 of the Federal Reserve Act stipulates that members of the Federal Reserve Board of Directors (a chairperson) can be “dismissed by the president.” Legal scholars often interpret “cause” as meaning serious misconduct or abuse of power.
Meanwhile, market observers are awaiting a Supreme Court decision on a case that reviewed an earlier court decision that saved Congress from being fired. Legal quarrels could ultimately affect whether Trump has the right to fire Powell.
In any case, some say the prospect of Powell’s removal is the latest reason for a series of reduced green exposure.
“The latest catalyst for dollar sales may be pressure on Powell, but the reality is that no further dollar sales reason is needed,” said Gareth Berry, a strategist at Macquarie in Singapore. “What has happened in the past three months is enough to guarantee a sustained dollar sales, perhaps in the coming months.”
