Market Analysis

Dollar Soars, Then Stabilizes After Trump’s Shift on Fed Chair

Mellissa · 23 Apr100K Views

Image Credit: Wall Street

The U.S. dollar saw a sharp rise and then stabilized on Wednesday after President Donald Trump backed off his previous threats to fire Federal Reserve Chair Jerome Powell, offering relief to investors. Market sentiment was also boosted by hopes of progress in trade negotiations.

This week, investors were concerned about the potential loss of the Fed's independence due to Trump’s repeated criticism of Powell for not lowering interest rates since he took office in January. However, Trump seemed to ease tensions on Tuesday by stating, "I have no intention of firing him," and expressing a desire for Powell to be more aggressive in cutting rates.

Following Trump’s comments, the dollar surged initially during early Asian trading, gaining more than 1% against the yen to 143.21, before stabilizing around 141.77. The Swiss franc also saw a rise, with the dollar up 0.29% at 0.8216. The euro held steady at $1.14, and the British pound dipped 0.17% to $1.3311.

On Tuesday, the dollar had been near multi-year lows against the euro and Swiss franc, with the yen hitting a seven-month high as investors sold U.S. assets amid trade uncertainties and Trump’s critiques of the Fed. Prashant Newnaha from TD Securities suggested that while the chances of Trump removing Powell were slim, his comments regarding the Fed and China were well-received by the market, signaling that the administration can't afford a market crash.

Investor sentiment was further supported by Trump and U.S. Treasury Secretary Scott Bessent’s comments that indicated a potential de-escalation in U.S.-China trade tensions, with any trade deal potentially leading to significant tariff reductions.

Matt Simpson of City Index highlighted that the dollar had shown signs of stabilizing since last week, and if trade tensions were indeed easing, it could be the catalyst that dollar bulls were waiting for. Bessent also mentioned that both the U.S. and China believed the current trade standoff was unsustainable, with a goal of avoiding a full economic decoupling.

Regarding tariffs, Trump expressed optimism that a deal with China could significantly reduce tariffs on Chinese goods, though they wouldn't be eliminated entirely. This followed his recent decision to delay harsher tariffs on multiple countries for 90 days to allow for negotiations.

Elsewhere, the Australian dollar rose 0.49% to $0.6395, while the New Zealand dollar gained 0.18% to $0.5974. The U.S. dollar index, which measures the currency against six others, was down 0.4% at 99.165 after a 1.5% jump the previous session.

In the cryptocurrency market, Bitcoin surged nearly 2%, breaking the $90,000 mark for the first time since March, while Ether climbed over 4%, reaching $1,768.