The U.S. dollar tumbled to its lowest level in over two years on Thursday amid renewed political attacks from former President Donald Trump against Federal Reserve Chair Jerome Powell, intensifying concerns over the Fed’s autonomy.
By 08:30 GMT, the U.S. Dollar Index, which tracks the greenback against six major currencies, had slipped 0.6% to 96.682—a level unseen since early 2022.
Powell Under Pressure Again
During his second day testifying before Congress, Powell remained cautious about cutting interest rates, emphasizing the need for clearer data on inflation, particularly related to the impact of tariffs.
Trump quickly criticized Powell’s cautious stance, accusing him of failing to act aggressively enough on rate cuts. Reports from The Wall Street Journal suggest Trump is considering naming Powell’s successor well before his term ends in May 2026.
“I already have a shortlist,” Trump said. “He’ll be gone soon enough—thankfully. I don’t think he’s done a good job.”
These comments unsettled investors, raising fears of political interference in monetary policy and shaking confidence in the Fed’s independence.
Analysts at ING pointed out that with differing views expressed publicly by Fed officials Michelle Bowman and Christopher Waller—both Trump appointees—markets might price in a more dovish Fed stance as U.S. data softens.
The buzz around an early Fed chair replacement also fueled expectations for looser monetary policy, with futures now implying a 25% chance of a rate cut at July’s Fed meeting, up from 12% a week earlier.
Euro and Pound Gain on Dollar Weakness
The euro climbed 0.4% to 1.1706 against the dollar, reaching its highest point since September 2021. Analysts at ING noted the single currency may have received some support from NATO’s new 5% defense spending target and Trump’s comparatively moderate comments towards European allies (excluding Spain).
However, the euro’s rise largely reflected dollar weakness. ING suggested that breaking above 1.170 could open the way toward the psychologically significant 1.20 mark, although further dollar softness might be needed to sustain the rally.
Still, risks loom for the euro, including the looming July 9 deadline for key U.S.-EU trade talks and ongoing tensions between Washington and Brussels.
Meanwhile, German consumer confidence remains fragile, with the July GfK index slipping slightly to -20.3, indicating persistent economic headwinds.
The British pound also rallied, gaining 0.6% to 1.3748 against the dollar, its strongest level since January 2022. The pound’s boost reflects growing skepticism about the dollar’s traditional role as the dominant global reserve currency.
Yen and Yuan Advance in Asia
In Asian markets, the Japanese yen strengthened, pushing USD/JPY down 0.9% to 143.97. Investors await Tokyo’s inflation report on Friday, which could influence the Bank of Japan’s next policy move amid rising inflation pressures.
China’s yuan also firmed, reaching a seven-month high as USD/CNY slipped 0.1% to 7.1683. Optimism about upcoming economic stimulus measures from Beijing is supporting the currency. Chinese media reported plans by the National Development and Reform Commission to introduce new consumer subsidies and trade-in incentives starting in July to boost domestic demand.