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Fed Independence Pressured Dollar Slides

The U.S. dollar plummeted across the board on Monday, rattled by deepening concerns over the Federal Reserve’s independence amid growing pressure from President Donald Trump to remove Fed Chair Jerome Powell. In a thinly traded session due to Easter Monday holidays across Europe, the dollar’s losses were steep, as investors rushed into traditional safe havens and dumped greenback-denominated assets.

At the heart of the dollar’s tumble is the intensifying political drama surrounding the Fed. On Friday, White House economic adviser Kevin Hassett confirmed that the Trump administration is actively exploring legal avenues to oust Powell — a move that would represent an unprecedented breach of central bank independence. The comments came a day after Trump himself took to social media, expressing frustration that Powell was not lowering interest rates fast enough, stating that Powell’s removal “cannot come fast enough.”

The reaction from the markets was swift and severe. The U.S. Dollar Index (DXY), which measures the dollar against a basket of major peers, fell to 98.164 — its lowest level since early 2022. Against the Swiss franc, the dollar sank more than 1% to a 10-year low of 0.80695. EUR/USD surged above the 1.1500 level, topping out near 1.1575, its highest since November 2021. Meanwhile, the New Zealand dollar breached the psychologically important $0.6000 level for the first time in over five months, and sterling rallied to $1.3395 — a level last seen in September.

The sell-off reflects more than just short-term headline risk; it points to a fundamental loss of confidence in the dollar as a credible store of value. The U.S. currency has already been under pressure from a cocktail of risks, including Trump’s sweeping tariffs and erratic trade policy, both of which have undermined global risk sentiment and cast doubt on the stability of U.S. policymaking.

But the latest development — potential political interference in the Fed — raises even more alarming questions. As Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho, put it, “You just need to create the perception that you could fundamentally change the view of an independent Fed.” Even if Powell isn’t fired, the credibility damage may already be done.

That sentiment was echoed by Chicago Fed President Austan Goolsbee, who warned that casting doubt on the Fed’s autonomy could have serious consequences for economic stability. “We should not move ourselves into an environment where monetary independence is in question,” Goolsbee said in a Sunday interview. “Central banks that have the ability to conduct monetary policy with no political tampering have better outcomes for their economies.”

The Fed’s credibility isn’t just a theoretical concern for economists — it’s a real-time factor in how markets perceive U.S. assets. A loss of independence risks unmooring inflation expectations, distorting rate outlooks, and ultimately leading to capital flight. This backdrop explains why, despite the U.S. remaining the largest economy in the world, investors are increasingly looking elsewhere.

Yen strength added another dimension to the dollar’s troubles, with USD/JPY dropping to a seven-month low of 140.615. According to the latest CFTC data, speculative net-long positions in the Japanese yen reached record highs as of April 15, underscoring the scale of the shift away from the greenback.

Other currencies also benefited. The Australian dollar climbed to a four-month high of $0.6430, and the offshore Chinese yuan hit a one-week high at 7.2835 before paring gains slightly. Even amid rising Sino-U.S. tensions, the yuan found support after China held its benchmark lending rates steady for a sixth straight month — though further stimulus is expected in the months ahead.

For EUR/USD, the rally to 1.1575 signals more than just dollar weakness — it underscores a fundamental shift in sentiment. While the European Central Bank is widely expected to cut rates again in June, that policy divergence is being overshadowed by the erosion of confidence in the dollar’s longer-term trajectory. Investors are increasingly doubting the dollar’s reliability as a safe haven, and as such, may continue rotating toward other major currencies, even those with their own dovish outlooks.

In summary

Monday’s sharp dollar sell-off was not just a function of low holiday liquidity. It reflected a deeper structural concern: the creeping politicization of U.S. monetary policy. As long as questions linger about the Fed’s independence, the greenback may struggle to regain its footing — even in times of global uncertainty, when it would traditionally shine. For now, dollar bears have the upper hand, and the markets are watching Washington more closely than ever.

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