Title: US Dollar Retreats Amid Trump’s Threat to Oust Fed Chair Powell — An In-Depth Look at USD, EUR/USD, GBP/USD, and USD/JPY
By Fiona Cincotta
Based on content originally published on Forex.com
The US dollar experienced considerable pressure recently following renewed political interference concerns from former President Donald Trump. Market jitters intensified after suggestions emerged that Trump could push to remove Federal Reserve Chairman Jerome Powell from his post if re-elected in November. This comes at a pivotal time for currency markets, with the Federal Reserve playing a critical role in shaping monetary policy direction and investor sentiment.
Trump’s ongoing criticism of Powell and the Federal Reserve is not new, but the latest headlines acted as a flashpoint, sparking a notable USD sell-off and renewed volatility across major forex pairs. The possibility of altering the leadership of the world’s most influential central bank — during a potentially fragile economic recovery and looming global uncertainty — unsettled markets that had otherwise priced in a more stable policy environment heading into Q3 2024.
This article looks at the key forex moves impacted by the news, examining technical and fundamental outlooks for major currency pairs including EUR/USD, GBP/USD, and USD/JPY.
Market Summary
– The DXY (US Dollar Index) slumped as investors responded to the latest Trump-related news.
– Fear of political interference in monetary policy undermined confidence in USD stability.
– EUR/USD and GBP/USD both rallied strongly against the dollar.
– USD/JPY fell from multi-week highs, with the Japanese yen gaining as a safe-haven currency.
Understanding the USD Sell-Off and Political Pressure
News that Trump is considering options for removing or demoting Jerome Powell before his term ends sparked immediate market concern. Powell’s current tenure is set to end in 2026, having been appointed by Trump and later renominated by President Biden in 2021. However, recent commentary from Trump campaign insiders suggested that the former president would explore all legal possibilities to influence or remove Powell should he return to office.
Such speculation rattled investor confidence for several reasons:
– The Federal Reserve’s independence is considered a linchpin for macroeconomic stability.
– Political meddling in interest rate decisions could trigger significant market disruption, especially in volatile conditions.
– Any attempt to replace Powell prematurely could increase yields unpredictably and weigh on dollar performance.
Despite these comments, markets had, until recently, largely dismissed the idea of Powell’s term being cut short. Trump’s fresh reminder that he may revisit that option hammered the dollar, with risk sentiment deteriorating as global investors sought to reprice the USD.
EUR/USD Analysis — Breakout Above Resistance
The euro rose sharply against the dollar on the back of the weakening greenback. EUR/USD pushed through key resistance levels to register a near two-month high, trading above the psychologically significant 1.09 handle.
Key technical observations:
– Price surged through 1.0880 resistance, which had capped upside movement since mid-June.
– The euro found renewed momentum with Fibonacci retracement levels pointing toward 1.0950 as a next test.
– Relative Strength Index (RSI) highlighted increasing bullish momentum but signaled caution with conditions nearing overbought territory.
From a fundamental perspective, eurozone economic indicators have been mixed. Inflation has receded from its 2022 peaks, and the European Central Bank (ECB) has signaled a data-dependent path forward. However, the price action was heavily driven by dollar weakness rather than euro strength, underscoring the importance of political dynamics in USD valuations.
Outlook for EUR/USD:
– Bullish as long as the pair holds above 1.0830 support.
– Further gains are possible toward 1.0950 and potentially even 1.10 if USD weakness persists.
– A return of risk appetite, especially in the absence of new political threats, could see some retracement.
GBP/USD — Surging on Broad Dollar Weakness
The British pound also capital
Explore this further here: USD/JPY trading.