Dollar Drops, Markets Shaken as Trump Mulls Early Replacement for Fed Chair Powell

Trump’s push to replace Fed Chair Powell fuels concerns over central bank independence, pressuring dollar and global markets

Asian markets remained volatile on Thursday, and the US dollar slid to its lowest level since March 2022, as reports emerged that former President Donald Trump is considering announcing a replacement for Federal Reserve Chair Jerome Powell well ahead of the 2026 expiration of his term.

According to sources, Trump may unveil a successor as early as September or October, a move that analysts warn could damage the credibility and perceived independence of the US central bank. The news rattled currency markets, driving the dollar index further down and boosting demand for safe-haven currencies like the Swiss franc and Japanese yen.

“If Trump announces a dovish pick now, it will revive worries that the Fed is being politically manipulated,” said Tony Sycamore, market analyst at IG. “That undermines confidence in both the Fed and the dollar.”

The MSCI’s broad index of Asia-Pacific shares outside Japan posted modest gains, buoyed by a recent Wall Street rally and relief that a ceasefire between Israel and Iran appears to be holding. Tokyo’s Nikkei index jumped 1.5%, reaching its highest level since late January.

In currency markets, the euro hit $1.6837 its strongest since September 2021 while the yen firmed 0.3% to 144.815 per dollar. The Swiss franc reached a ten-year high. The dollar index has fallen 10% this year, weighed down by fears over Trump’s tariff threats and aggressive trade posture.

Markets are also closely watching Trump’s July 9 deadline for trade agreements, with concerns mounting that a fresh round of tariffs could disrupt global commerce and stoke inflation.

Current Fed Chair Powell, who began his second day of testimony before Congress on Wednesday, acknowledged that Trump’s proposed tariffs may cause a short-term price spike. Still, he warned that the broader inflationary risks are significant enough to warrant caution when considering rate cuts.

Investors are now pricing in a 25% chance of a rate cut at the Fed’s end-of-July meeting, up from 12.5% last week, according to the CME FedWatch tool. The US two-year Treasury yield fell to 3.764%, the lowest in seven weeks.

“Investors are recalibrating for a potentially more dovish Fed, especially with Powell under political pressure,” said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management. “Tomorrow’s PCE inflation data will be a critical signal.”

Bank of America analysts warned that the Fed, and other central banks, may remain in a defensive stance due to global trade uncertainty and geopolitical volatility. “Unsustainable fiscal dynamics in major economies could trigger accidents in bond markets,” the bank said.

Oil prices edged higher, continuing their recovery after sharp swings earlier this month linked to Middle East tensions. Brent crude futures rose 0.37% to $67.93 a barrel, while US WTI crude gained 0.45% to $65.21.