The U.S. dollar wavered on Thursday, weakened by growing unease surrounding President Donald Trump’s strained relationship with Federal Reserve Chair Jerome Powell. While Trump denied reports suggesting he intends to dismiss Powell, he left open the possibility, intensifying concerns over the central bank’s independence.
For months, Trump has criticized Powell for not slashing interest rates to below 1%, and recent comments suggest he’s unwilling to back down. A Bloomberg report indicated that the President had polled Republican lawmakers on firing Powell, with some reportedly supportive. Though Trump dismissed the report, his comment—”I don’t rule out anything”—did little to calm nerves.
Markets fear that a premature dismissal of Powell, whose term ends in May 2026, could severely damage the credibility of the Federal Reserve and shake investor confidence in the U.S. financial system. Such a move may also weaken the dollar’s status as a safe-haven currency.
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“A scenario where the Fed turns more dovish under political pressure could spark inflation concerns and drive real Treasury yields into negative territory,” said Mahjabeen Zaman, head of FX research at ANZ, on a podcast. “If that comes to fruition, you’re going to see a much weaker dollar than we’re already expecting.”
The dollar index saw a 0.3% dip on Wednesday and remained flat at 98.384 by Thursday. Against the yen, the dollar inched up 0.2% to 148.14 after falling 0.6% the day prior. Meanwhile, the euro hovered around $1.1632, and the British pound slipped 0.1% to $1.3409.
Global market sentiment also remains clouded by trade tensions. Trump hinted that tariffs with Japan may be enforced strictly and signaled upcoming trade deals with India following a fresh accord with Indonesia.
Adding to the uncertainty, Japan heads into a significant upper house election this weekend, with the potential for political shifts that could further strain its economic outlook. Long-dated Japanese government bond yields have surged to record highs in response.
As geopolitical risks and central bank independence take center stage, investors brace for heightened market volatility and potential long-term impacts on the global currency landscape.
