The US Dollar (USD) is on a freefall. In fact, during North American trading hours on Monday, it plummeted down below 140.50 vs. the Japanese Yen (JPY). The steep decline follows US President Donald Trump’s very provocative remarks. He cavalierly questioned the Federal Reserve’s “autonomous” status and even threatened to fire Fed Chair Jerome Powell for not lowering interest rates. With some help from falling USD fortunes, the DXY has retraced down close to 98.00. This decline represents its lowest level in three years and brings fears of a possible recession to the United States.
As the USD is weakening, at the same time the EUR (Euro) is soaring. As of this writing, the EUR/USD currency pair is up over 1%. This increase has moved the currency pair above 1.1500, to its strongest point since November 2021. The increasing strength of the Euro indicates that concerns with the US economy are growing more serious. This worry about the Federal Reserve’s independence hits home in foreign markets.
President Trump’s threats against the Fed have become more urgent as he doubles down on his call for more monetary accommodation. “The Fed really owes it to the American people to get interest rates down. That’s the only thing he’s good for,” Trump stated. He further remarked on Powell’s job security, asserting, “If I want him out of there, he’ll be out real fast, believe me.”
Investors are rightly concerned about the effect that this political pressure might have on the Federal Reserve’s decision-making process going forward. This new and increasing worry is amplifying existing uncertainty about US economic policy. Most Americans don’t realize that the Fed is an independent, for-profit corporation. Its primary mission is to conduct monetary policy independent of short-term political pressure, a point many economists believe is crucial for delivering a stable economy.
With global economic uncertainty increasing, investors are rushing to safe havens. This development has provided significant support to the Japanese Yen, despite you know what’s going on with the US Dollar. Investors are looking for an oasis in the storm of market unpredictability and murky Trump administration tariff plans. Consequently, the JPY has been the strongest currency. The Bank of Japan (BoJ) will continue laying the groundwork for further interest rate increases. This approach couldn’t be more different than where the Federal Reserve is headed today.
US analysts, in particular, are waiting with bated breath for our upcoming slate of US economic data. Having this additional information will help provide a clearer picture of the state of the economy and may help inform future monetary policy adjustments. Once these more timely economic indicators start to come out, market participants will start to judge the effects of Trump’s tariffs and Fed policies on future growth prospects.