Dollar swung sharply overnight as speculation swirled around the fate of Fed Chair Jerome Powell. Reports surfaced that US President Donald Trump was preparing to fire Powell imminently, with one claim suggesting a dismissal letter had already been drafted and shown to lawmakers during a meeting on cryptocurrency legislation. Dollar initially plunged on the news amid fears of a major hit to Fed credibility. However, the greenback recovered swiftly after Trump walked back the rumors, telling reporters, “We’re not planning on doing it... I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud.” Still, the episode reinforced growing concerns about political interference at the central bank. Persistent pressure from the White House to lower interest rates has already raised questions about Fed independence. For now, most Fed officials appear focused on managing inflation risks tied to the Trump administration’s sweeping tariffs. While Powell chairs the FOMC, policy decisions remain collective, limiting the scope for direct political influence. But markets remain wary. Any leadership upheaval interpreted as compromising the Fed’s autonomy could trigger a sharp repricing in the dollar, equities, and—most critically—Treasuries. A selloff in US government bonds would hit the administration hardest, pushing yields sharply higher and raising borrowing costs at a time of ballooning deficits. That prospect may help explain Trump’s decision to distance himself, for now, from the firing chatter. Elsewhere, Australian Dollar slumped in Asia after June employment data badly missed expectations, with particular weakness in full time work. Some market participants criticized RBA’s July hold as a policy misstep in hindsight. Others caution against overreacting, noting the data may reflect volatility rather than a turning point. Still, the market now sees rising odds of an August cut, contingent on the upcoming Q2 inflation print. If CPI also softens, the case for easing will be hard to dismiss..... |
