The U.S. dollar came under pressure during European trading on Monday after American prosecutors launched a criminal investigation into Federal Reserve Chair Jerome Powell, raising fresh concerns about political interference in the U.S. central bank.
By 04:25 ET (09:25 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — was down 0.4% at 98.460, putting it on course to end a five-session winning run.
Powell faces mounting legal pressure
The dollar’s decline followed comments from Jerome Powell, who said the Trump administration had threatened him with criminal charges linked to testimony he gave to Congress last summer regarding cost overruns on a Federal Reserve building renovation.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said.
The development marks a further escalation in tensions between U.S. President Donald Trump and the Federal Reserve, fuelling investor anxiety over the institution’s independence.
Analysts at ING warned that the implications for the dollar could be significant. “The downside risks for the dollar from any indications of further determination to interfere with the Fed’s independence are substantial,” they said in a research note.
”Again, the bond market will be the most important barometer, both on the short end of the curve if markets price back in more rate cuts, or in the long end with potential stress signs on independence risks. A sharp steepening of the curve could take the dollar on a fall.”
The focus now turns to Tuesday’s release of the U.S. consumer price index for December, one of the final major data points ahead of the Federal Reserve’s next policy meeting later this month.
“We would have had a moderately bullish view on the dollar this week as we expect tomorrow’s U.S. core CPI to come in above consensus at 0.4% month-on-month,” ING added, but noted that “markets need to have a clearer view on this explosive Fed development before re-entering dollar longs.”
European currencies gain ground
In Europe, the euro benefited from broad dollar weakness, with EUR/USD rising 0.5% to 1.1690 and rebounding from a one-month low.
The eurozone calendar is light on major economic releases, and while several European Central Bank officials are due to speak, recent commentary has shown little policy divergence.
“We still think EUR/USD can eye 1.1600 in the near term if Fed risk is priced out. But markets may require quite a bit of reassurance first, and we’d rather have a bullish bias to 1.170-1.1750 for today,” ING said.
Sterling also strengthened, with GBP/USD up 0.5% at 1.3464, while USD/CHF dropped sharply, falling 0.7% to 0.7959.
“The Swiss franc is the best-performing G10 currency this morning, confirming its role as a preferred hedge against Fed independence risk,” ING added.
Asian currencies edge higher
In Asian trading, USD/JPY slipped 0.1% to 157.81, as the yen drew modest support from the weaker dollar, although trading volumes were subdued due to a public holiday in Japan.
The pair also retreated from a one-year high after the leader of Japanese Prime Minister Sanae Takaichi’s coalition partner said on Sunday that a snap election could be called for February 8 or 15.
Elsewhere, USD/CNY eased slightly to 6.9746, while AUD/USD climbed 0.3% to 0.6703, with the risk-sensitive Australian dollar also advancing against the broadly weaker U.S. currency.