Market Analysis

Trump’s Attacks on Fed Push Dollar to Decade-Low

Mellissa · 21 Apr17.2K Views

The dollar plunged on Monday as investor confidence in the U.S. economy waned, triggered by President Donald Trump's continued threats to overhaul the Federal Reserve, raising concerns about its independence.

White House economic advisor Kevin Hassett confirmed on Friday that the president's team was exploring the possibility of firing Fed Chair Jerome Powell, just one day after Trump expressed frustration, stating Powell’s removal "cannot come fast enough" and urging the Fed to cut interest rates.

As a result, the dollar dropped to its lowest level in a decade against the Swiss franc and weakened to a seven-month low against the yen. Meanwhile, the euro soared to its highest level in three years, further reflecting ongoing doubts about the U.S. currency's stability.

Market activity was subdued due to the Easter Monday holiday, with markets in Australia and Hong Kong closed. Many global markets had been closed on Friday as well.

Vishnu Varathan, Head of Macro Research at Mizuho, commented that while Trump cannot directly fire Powell, he could influence the perception of the Fed's independence. "He could create the perception of undermining the Fed's autonomy," Varathan noted, suggesting that even without dismissing Powell immediately, the potential for change in the central bank's stance could harm market confidence.

The euro peaked at $1.1533, while the dollar fell to a 10-year low of 0.80695 against the Swiss franc, and dropped by 1.1% to 140.63 yen. Meanwhile, net long positions on the Japanese yen reached a record high according to CFTC data for the week ending April 15.

The British pound rose more than 0.5% to $1.3380, its highest since October 1, and the Australian dollar climbed to a two-month high of $0.64015.

The ongoing uncertainties surrounding Trump's trade policies and tariffs have weighed heavily on global markets, leading to a grim outlook for the U.S. economy and further weakening the dollar as investors moved their capital away from U.S. assets.

The dollar, measured against a basket of currencies, fell to a three-year low of 98.267 on Monday. The New Zealand dollar gained over 0.7%, hitting a five-month high of $0.5981.

In China, the onshore yuan rose about 0.2% to 7.2875 per dollar, with the offshore yuan trading slightly higher at 7.2897. China maintained its benchmark lending rates for the sixth consecutive month, meeting market expectations, but investors are anticipating further stimulus measures amid the escalating trade conflict with the U.S.