Bloomberg’s index for the greenback fell to its lowest in three years following a Wall Street Journal report indicating that President Donald Trump could announce a replacement for current chair Jerome Powell by September or October. Traders interpreted this news as a sign that early interest-rate cuts are becoming increasingly probable, especially since Trump has consistently urged Powell to reduce borrowing costs.
“Trump’s nomination will escalate pressure significantly, potentially leading to a shadow Fed chair before Powell’s departure in May next year,” remarked Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “We believe it’s reasonable to say that the pressure on Powell to lower rates will intensify, contributing to additional selling pressure on the dollar.”
Recent news regarding Powell adds yet another layer of risk to the dollar and US Treasuries, both of which are already facing challenges from tariff uncertainties and a rising fiscal deficit.
Bloomberg’s dollar index decreased by as much as 0.2% to its lowest level since April 2022. The index has now plummeted more than 8% this year. Traders have recently increased their bets on Fed rate cuts, now pricing in 66 basis points of easing by the end of the year compared to 51 basis points at the close of the previous week, based on overnight-indexed swaps.
“This is certainly exerting pressure on the broader dollar,” stated Ignatius Pang, head of foreign-exchange sales and execution for Asia at Union Bancaire Privee. Periods of US currency strength present “opportunities to consider diversifying” dollar holdings, he added.
Potential candidates to replace Powell include Fed governor Kevin Warsh and National Economic Council director Kevin Hassett, according to a Wall Street Journal report citing sources familiar with the situation.
What Bloomberg Strategists Say
“Investors are likely to interpret the possibility of President Trump appointing a new Federal Reserve chair by October as an indicator that early interest-rate cuts are more feasible. Traders anticipate a Fed rate cut in September, but this development raises the stakes for a serious consideration of a 25-bp reduction in July.”
Mark Cranfield, Markets Live strategist
On Wednesday, Trump mentioned he had three or four candidates in mind to succeed Powell, whose term as chair concludes in May 2026. The president has criticized the Fed’s decision to maintain rates, advocating for cuts and claiming that the central bank is keeping borrowing costs high for the US government.
“This effectively diminishes Powell’s influence as attention shifts toward the incoming Chair,” commented Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. “So it’s a dovish tilt.”
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