DOJ vs. Powell Pressures Dollar, Markets Turn to Safe Havens
The US dollar weakened on Monday after the US Department of Justice (DOJ) issued a subpoena to Federal Reserve Chairman Jerome Powell, sparking market concerns that the US central bank's independence is under political pressure. These concerns have weighed on the dollar's long-term outlook, amid heightened market sensitivity to policy headlines in Washington.
Powell said on Sunday that the Fed received a subpoena from the DOJ last week regarding his testimony before Congress last summer regarding the cost overruns of the Fed's $2.5 billion renovation project at Washington headquarters. Powell considered the move not merely about renovations, but rather a "pretext" to open up room for intervention in interest rate policy—at a time when President Donald Trump continues to push for more aggressive rate cuts.
The White House attempted to downplay the issue. Press Secretary Karoline Leavitt asserted that Trump had not directed DOJ officials to investigate Powell. But the market quickly grasped the main message: political pressure on the Fed was mounting, and it was enough to halt the dollar's early-year rally.
"This just broke the dollar's early-year rally," said Marc Chandler, chief market strategist at Bannockburn Global Forex. He said the subpoena's impact even "trumped" geopolitical impact in shaping sentiment that day.
In the markets, the Dollar Index (DXY) fell 0.37% to 98.87. The euro strengthened 0.29% to US$1.1671, while the Swiss franc was among the most solid performers—the dollar weakened 0.54% to 0.797 per franc.
Meanwhile, the political dynamics leading up to the Fed leadership change are also in the spotlight. Trump is expected to choose a more dovish Fed Chair when Powell's term ends in May, although Powell still has a chance of remaining as Fed chairman. Fox Business reported that Trump will interview Rick Rieder (head of bond investment manager BlackRock) on Thursday, and Rieder is said to be among the four finalists to replace Powell.
On Capitol Hill, this issue has also sparked a response. Senator Lisa Murkowski is said to support Republican Senator Thom Tillis's plan to block Trump's nominees for the Fed, in protest of the DOJ investigation targeting Powell.
Markets Await Tariff Direction and US Inflation Data
This week, market participants are also monitoring developments in US tariff policy. The dollar strengthened on Friday after solid US employment data reinforced expectations that the Fed would hold interest rates at its January 27-28 meeting. Fed funds futures indicate the likelihood of the next rate cut is now more likely to be around June.
The next data point of focus is the December US inflation (CPI) release on Tuesday. This data will be a key determinant of whether expectations for monetary easing remain realistic or will be pushed back further—which ultimately impacts the dollar and global risk assets.
Furthermore, safe-haven demand for the dollar throughout this year has also been supported by rising geopolitical tensions—including after the US detained Venezuelan leader Nicolas Maduro and Trump's comments about the US desire to acquire Greenland. Developments in Iran are also of concern, as Tehran has stated that communication channels with the US are still open as Trump considers his response to the crackdown on protests—a situation that has been called one of the regime's biggest challenges since 1979.
Nomura analysts led by Craig Chan believe that the USD's direction is currently facing a tug-of-war: there are short-term headwinds due to the Fed's independence issue, but the dollar remains cushioned by the Fed's relatively tight policy stance and persistent geopolitical risks. They also highlight another factor: the market is awaiting a US Supreme Court ruling on the legality of Trump's IEEPA-based tariff policy, which could come as early as Wednesday.
Yen Under Pressure, Bitcoin Strengthens
In Asia, the dollar edged up 0.15% against the yen to 158.12, after briefly touching a one-year high of 158.19. The yen came under pressure after disappointing Japanese wages data led markets to delay expectations of a Bank of Japan interest rate hike. Domestic political uncertainty in Japan also added to the currency's pressure.
In the crypto market, Bitcoin rose 1.15% to US$91,699, as investors remained active in alternative assets amid volatility in macro and geopolitical headlines.
Source: Newsmaker.id
