The Dollar fell to its lowest levels in years against the Euro and Swiss Franc on Thursday, as worries about the US Federal Reserve’s future independence shook confidence in the nation’s monetary policy.
A Wall Street Journal article reported that US President Donald Trump had considered naming a replacement for Federal Reserve Chair Jerome Powell as early as September or October, in an apparent effort to weaken his authority.
“From a market perspective, of course, not only does that undermine the Fed’s credibility and independence, clearly, (but) it’s a risk to the outlook for US rates as well,” stated Nick Rees, head of macro research at Monex Europe.
“Those concerns weigh on the Dollar this morning,” Rees added.
On Wednesday, Trump criticised Federal Reserve Chair Jerome Powell as “terrible” for not aggressively cutting interest rates. At the same time, Powell was addressing the Senate, stressing the need for a cautious approach to monetary policy due to the inflationary risks posed by the president’s tariff measures, Reuters reports.
Meanwhile, market expectations for a rate cut at the Fed’s upcoming July meeting have increased to 25%, up from 12% a week earlier. Investors are now anticipating a total of 64 basis points in rate cuts by the end of the year, compared to about 46 basis points last Friday.
The Dollar faced widespread pressure as the Euro climbed 0.6% to $1.1729, marking its strongest level since September 2021.
The British Pound also advanced, rising 0.65% to $1.3753, its highest point since October 2021. Meanwhile, the Dollar fell to a more-than-decade low against the Swiss Franc at 0.7983. The Franc also hit a record high against the Yen, reaching around 180.55 overnight.
However, the safe-haven Japanese Yen was regaining strength across the board, recovering from losses in the previous session.
“From a Yen perspective, traders are just looking for next steps from the Bank of Japan. We think (the rate path) is going to be fairly moderate, but we do think it supports sustained Yen appreciation in the medium term,” Rees added.
After increasing short-term interest rates to 0.5% in January, the Bank of Japan has indicated it is prepared to implement further rate hikes.
However, a summary of opinions from the Bank of Japan’s June policy meeting released on Wednesday showed that policymakers favoured holding interest rates steady for now, citing uncertainty over the potential effects of US tariffs on Japan’s economy.
The greenback fell nearly 1% against the Yen to 143.91, while the Dollar index dropped to 97.09, its lowest level since early 2022.