The U.S. dollar fell sharply to its lowest point in over two years on Thursday, following renewed political pressure on Federal Reserve Chair Jerome Powell from former President Donald Trump, sparking fresh concerns about the independence of the central bank.
By 08:30 GMT, the U.S. Dollar Index—which measures the dollar’s value against a group of six major currencies—had declined by 0.6% to 96.682, a level not seen since early 2022.
Powell Faces Renewed Political Heat
During the second day of his congressional testimony, Fed Chair Jerome Powell maintained a cautious approach to monetary easing, stating that any interest rate cuts would depend on further clarity around inflation, especially in light of potential tariff effects.
His position drew swift condemnation from Donald Trump, who criticized Powell for being too conservative with rate cuts. The Wall Street Journal reported that Trump is weighing an early announcement of Powell’s successor—months ahead of the end of Powell’s current term in May 2026.
“I already have three or four names in mind,” Trump said. “He’s out soon enough—thankfully. I don’t think he’s done a good job.”
Such remarks have rattled markets, raising the specter of political interference in monetary policy and diminishing confidence in the Federal Reserve’s independence.
ING analysts noted that with two Fed officials—Michelle Bowman and Christopher Waller, both Trump appointees—publicly expressing differing views, markets may begin pricing in a more dovish Fed outlook in response to softening U.S. data.
At the same time, speculation around a potential early nomination for a new Fed chair has reinforced expectations of a looser policy stance. As a result, market pricing now shows a 25% probability of a rate cut at the Fed’s July meeting, up from just 12% one week ago.
Euro and Sterling Strengthen as Dollar Stumbles
The euro rallied, with EUR/USD up 0.4% to 1.1706, its highest level since September 2021. ING analysts suggested the single currency may have received a mild boost from NATO’s agreement on a 5% defense spending goal and Trump’s relatively neutral tone towards European allies—excluding Spain.
Still, analysts emphasized that the movement in EUR/USD was largely a reaction to dollar weakness. “If the pair can sustain a break above 1.170, the next psychological target could be 1.20,” ING noted, although further U.S.-related weakness may be necessary to support that move.
However, risks remain for the euro. Trump’s July 9 deadline for resolving major trade negotiations looms, and tensions between Washington and Brussels could resurface.
Meanwhile, German consumer sentiment continues to flag, with the July GfK index slipping slightly to -20.3, suggesting lingering economic headwinds.
The British pound also benefited from the dollar selloff, with GBP/USD climbing 0.6% to 1.3748, the highest level since January 2022. The pound’s strength reflects broader doubts about the dollar’s long-standing status as the world’s dominant reserve currency.
Yen, Yuan Gain Ground in Asia
In Asian trading, the Japanese yen strengthened, pushing USD/JPY down 0.9% to 143.97. Investors are awaiting Friday’s inflation data out of Tokyo, which could shape expectations for the Bank of Japan’s next interest rate decision. A recent uptick in inflation has raised speculation that a policy tightening could be on the horizon.
China’s currency also gained ground, with the yuan rising to a seven-month high. USD/CNY fell 0.1% to 7.1683, supported by expectations of fresh economic stimulus from Beijing. Chinese media reported that the National Development and Reform Commission plans to roll out a new round of consumer subsidies and trade-in incentives starting in July, aimed at boosting domestic demand.
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