Dollar Falls to Multi-Year Lows as Trump’s Fed Attacks Shake Confidence
The US dollar continued to drop on Thursday, hitting multi-year lows against major currencies like the Euro, British Pound, and Swiss franc. This downfall comes after growing concern that American President Donald Trump’s recent attack on Federal Reserve Chair Jerome Powell is undermining the central bank's credibility.
A report by the Wall Street Journal stated that Trump is considering announcing a replacement for Powell as early as September. Markets reacted strongly to this idea, with many fearing that independence would weaken the Fed’s interference and increase political interference in monetary policy.
Market Access Rate Cuts as Fed’s Credibility, Waivers
Investors are now adjusting their expectations. The odds of a rate cut at the Federal Reserve’s next meeting in July have increased to 25% from just 12% a week ago. Markets are also pricing in 64 basis points of cuts by the end of the year.
Traders worry that if Trump replaces Powell with someone as loyal to him, it may lead to a short-term decision for long-term financial stability. Trump criticised Powell earlier this week, calling him terrible for not lowering interest rates faster. At the same time, Powell said that Trump tariffs could increase inflation and require setting policy.
Dollar Hits Lows Not Seen in Years
The euro to $1.1687 its highest level since October 2021. Sterling reached $1.3690, a peak not seen since January 2022. Against the Swiss franc, the dollar dropped 0.8033, which is the lowest since 2011.
The dollar index, which measures the currency against the six major peers, fell to 97.491, which is not seen since early 2022. The Japanese yen also came up slightly, with a dollar dipping to 144.89 yen.
Tariffs, Recession Risk Add to Pressure on Dollar
Beyond the Fed issue, investors are growing very tense about Trump’s trade policies. With a July 9 deadline for new trees approaching, the President’s unpredictable tariff threats are causing uncertainty. JPMorgan warned that the tariffs could raise inflation and slow economic growth, increasing the risk of a US recession to 40%.
Analysts also said that these developments mark the end of a period called US exceptionalism, where the Dollar was seen as the world’s safest and strongest currency. Now, some investors are shifting funds towards Europe as new defence and infrastructure investments will strengthen the Eurozone economy.
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