The U.S. dollar came under significant pressure on Thursday (June 26) in global markets, hitting its lowest level against the euro in nearly four years. This drop was driven by growing uncertainty over the independence of the Federal Reserve and concerns surrounding monetary policy stability, which have shaken investor confidence.

According to The Wall Street Journal, former President Donald Trump is reportedly considering replacing current Fed Chair Jerome Powell with a new appointee as early as September or October. The mere suggestion of political interference has heightened anxiety in financial markets.

Analysts note that fears over the Fed’s autonomy are triggering a broader crisis of confidence among investors, who now find it harder to predict future interest rate decisions. Nick Rees, Head of Macro Research at Monex Europe, commented that this isn’t just a matter of central bank independence—it creates deep uncertainty around the trajectory of U.S. interest rates, especially as the U.S.–EU reciprocal tariff agreement is set to expire on July 9, adding further unease.

The situation escalated after a public exchange of remarks between Trump and Powell on Wednesday. Powell warned that Trump’s trade policies could contribute to prolonged inflation, suggesting the Fed would act more cautiously on rate cuts. Trump responded by calling Powell “terrible” and claiming he has several replacements in mind for the top Fed role.

This turmoil has led markets to increase expectations that the Fed might cut rates in July. Just a week ago, that probability stood at 12%, but it has now risen to 25%. For the year, markets are now pricing in a total cut of 64 basis points, up from 46 basis points projected last week.

As a result, the euro climbed to $1.1729—its highest level since September 2021. The British pound rose by 0.65% to $1.3753, its strongest since October 2021. The dollar also fell to 0.7983 against the Swiss franc, marking a decade-low. At the same time, the franc surged to a record high of 180.55 against the yen.

Meanwhile, the Japanese yen regained some strength after earlier declines, with investors increasingly viewing it as a safe-haven asset. Attention is now focused on the Bank of Japan’s next policy moves. After raising short-term interest rates to 0.5% in January, there are signals that further increases may be ahead.

Nick Rees added that while the Bank of Japan is likely to proceed cautiously, even a gradual pace may be enough to keep the yen's upward momentum intact.

In summary, political pressure on the Fed and uncertainty over international trade are severely undermining the dollar’s stability, allowing rival currencies like the euro, pound, yen, and franc to gain ground.

Source: Reuters