The U.S. dollar came under renewed selling pressure during European trading on Monday after prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell, reviving concerns that political forces may be encroaching on the central bank’s independence.
By 04:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against six major currencies, was down 0.4% at 98.460, putting it on track to end a five-session run of gains.
Powell at the centre of legal and political tension
The greenback moved lower after Fed Chair Jerome Powell said the Trump administration had threatened him with criminal charges related to testimony he delivered to Congress last summer on cost overruns linked to a Federal Reserve building renovation.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said.
The comments mark a fresh escalation in the long-running clash between President Donald Trump and the Federal Reserve, heightening investor unease over the institution’s autonomy.
Strategists at ING warned that further signs of interference could weigh heavily on the dollar. “The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial,” the bank said.
“Once again, the bond market will be the key gauge, both at the front end of the curve if investors price in additional rate cuts, and at the long end if concerns about independence trigger stress. A sharp steepening of the curve could drive the dollar lower.”
Markets are now looking ahead to Tuesday’s release of the U.S. consumer price index for December, one of the final major data points before the Federal Reserve’s policy meeting later this month.
“We would have held a moderately bullish stance on the dollar this week, as we expect U.S. core CPI to exceed consensus at 0.4% month-on-month,” ING added. However, the bank noted that “markets need greater clarity on this explosive Fed development before rebuilding long dollar positions.”
Euro, sterling and franc advance
European currencies gained ground as the dollar retreated. The euro rose 0.5% to 1.1690, rebounding from a one-month low amid broad-based greenback weakness.
With few major eurozone data releases scheduled and little sign of dissent among European Central Bank policymakers, currency moves were largely driven by developments in the United States.
“We still think EUR/USD could test 1.1600 in the near term if Fed risks fade,” ING said. “But for now, markets may need significant reassurance, and we prefer a bullish bias toward 1.1700–1.1750 today.”
Sterling also strengthened, with GBP/USD up 0.5% at 1.3464, while the Swiss franc outperformed. USD/CHF slid 0.7% to 0.7959.
“The Swiss franc is the strongest-performing G10 currency this morning, reinforcing its status as a preferred hedge against Fed independence risk,” ING added.
Asian currencies follow suit
In Asia, USD/JPY dipped 0.1% to 157.81, with the yen supported by the softer dollar, although trading volumes were muted due to a public holiday in Japan.
The pair also retreated from a one-year high after the leader of a coalition partner of Japanese Prime Minister Sanae Takaichi said a snap election could be held on February 8 or 15.
Elsewhere, USD/CNY edged slightly lower to 6.9746, while AUD/USD rose 0.3% to 0.6703, as even risk-sensitive currencies found support against a broadly weaker U.S. dollar.
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