The dollar, US stock futures and Treasuries slid, pushing the yield on 30-year bonds higher by as much as 10 basis points in thinner-than-normal, post-holiday trading. Investors are grappling with the risk of Powell’s dismissal, which the White House said last week it was assessing, and the implications of his policies on the world’s largest economy.
“At a moment in which the administration has already instilled ever-higher levels of uncertainty into the economic outlook, any attempt to remove Powell will add to the downward pressure on US assets,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
While legal scholars say that a president can’t dismiss a Fed chair easily, and Powell has said he wouldn’t resign if asked by Trump, the speculation is dealing US assets a fresh blow. Washington’s aggressive trade tariffs have already fanned fears of a recession and fueled doubts about the status of Treasuries as the haven of choice.
The mix of risks is fueling concern about the paths of growth and inflation — and how the Fed can balance them. While traders are pricing in at least three interest-rate cuts in the US this year, former New York Fed President Bill Dudley wrote in a Bloomberg Opinion column that policymakers will likely move slower than anticipated.
The Bloomberg Dollar Spot Index fell as much as 1% to the lowest level since late 2023 on Monday, before slightly trimming the move. The yen strengthened to a level last seen in September, while the euro rallied to the highest in more than three years.
The shared currency is now trading at around $1.15, close to the most bullish year-end forecasts from strategists. The yen, at around 140.50 per dollar, is stronger than the median year-end target of 143, Bloomberg data shows.
“Trump’s musings on the potential for firing Fed Chair Powell, even if such thoughts don’t come to fruition, do in the minds of the international community constitute a substantial threat to the independence of the US central bank and by extension the status of the dollar as a safe haven currency,” said Monex foreign-exchange trader Helen Given.
“Should the US fall into a recession with a central bank that either does not or cannot act independently, there’s a chance such a downturn could be exacerbated, giving markets even more reason for concern,” she said.
The selling intensified after National Economic Council Director Kevin Hassett said Friday that Trump was studying the matter, after a report said the president was exploring such a move.
Several hedge funds were among those selling the dollar on Monday after Hassett’s remarks, according to traders familiar with the transactions, who asked not to be identified because they aren’t authorized to speak publicly.
Hedge funds are now the least bullish on the greenback since October, Commodity Futures Trading Commission aggregated data showed. While headlines on Powell are certainly not helping sentiment, others say the worsening global trade war will likely continue to be the dominant driver on dollar trading.
“Central bank independence is so valuable — not something to take for granted and so difficult to win back if it’s ever lost,” said Will Compernolle, a macro strategist at FHN Financial in Chicago. Trump’s “threats against Powell are not helping foreign investors’ confidence in US assets, but I still think that tariff updates are the main drivers,” he said.
The declines on Monday weren’t confined to the greenback. US stock futures dropped as well, while the Treasury curve steepened, with two-year yields edging lower even as the 30-year yield surged.
The extra yield investors demand to own 30-year Treasuries over two-year maturities had increased for nine straight weeks, a streak seen only one other time since Bloomberg began collating the data in 1992.
Meanwhile, warnings from Wall Street equity strategists have piled up as Trump’s trade war undermines the outlook for US economic growth and earnings.
Strategists at Citigroup Inc. last week lowered their view on US equities, saying cracks in “US exceptionalism” will persist. They joined the likes of Bank of America Corp. and BlackRock Inc. in turning cold on the stocks in recent days.
“The latest catalyst for dollar selling might have been pressure on Powell, but the reality is that no further justification for USD selling is needed,” said Gareth Berry, a strategist at Macquarie in Singapore. “What has already happened over the past three months is justification enough to warrant ongoing US dollar selling, perhaps for months to come.”
