US Dollar weakens as Powell faces perjury allegations
The US Dollar (USD) kicks off the week on the back foot, slipping against major currencies in Monday trading. Investors are reacting to renewed trade tensions ahead of the August 1 deadline and a generally cautious market sentiment. Despite mostly solid US economic data lately, the Greenback is feeling the heat from ongoing uncertainty surrounding the US President Donald Trump administration’s ramped-up tariff threats and increasing political pressure on the Federal Reserve (Fed) to cut interest rates.
Concerns over the Fed’s independence have intensified after Rep. Anna Paulina Luna (R-Fla.) formally referred Chair Jerome Powell to the Department of Justice (DOJ) for criminal charges, accusing him of two specific instances of lying under oath during his congressional testimony about the Federal Reserve’s $2.5 billion headquarters renovation. While legal consequences remain uncertain, the political overhang is fueling investor jitters and adding a fresh layer of uncertainty to an already fragile market sentiment. The timing is particularly sensitive, as markets continue to grapple with mixed signals from Fed officials regarding a potential July interest rate cut and lingering doubts about the central bank’s ability to operate free from political interference.
Speaking on CNBC Monday, Treasury Secretary Scott Bessent launched a sharp critique of the Federal Reserve, stating that it’s time to “examine the entire institution and whether they’ve been successful.” His remarks added to growing unease about potential political pressure on the Fed, denting confidence in its independence and casting uncertainty over the policy outlook. Bessent went further, pushing back against the Fed’s inflation warnings. “They’re fearmongering over tariffs,” he said, insisting inflation remains under control.
The US Dollar Index (DXY), which measures the Greenback against six major currencies, extends its intraday descent after logging two consecutive weekly gains. As of the American trading hours, the index is trading near 97.90, retreating further amid mounting policy tension and shifting interest rate expectations.
After a turbulent week marked by fresh tariff threats and reports that President Trump considered firing Fed Chair Jerome Powell, a claim he later downplayed as “highly unlikely”, the US Dollar Index still managed to hold modest gains.
Mixed signals from Fed officials on a possible July rate cut added to the uncertainty, but strong economic data, including solid Retail Sales and a healthy labor market, lent support to the Greenback. The DXY ended the week up 0.62%, showcasing its resilience in the face of political noise and policy tensions. However, the broader trend suggests underlying weakness in the US dollar.
Looking ahead, the US economic calendar is relatively light, and the Fed is currently in its blackout period ahead of the July 30 policy meeting, meaning that no official comments on monetary policy from Fed members are expected. While Fed Chair Jerome Powell and Governor Michelle Bowman are scheduled to speak on Tuesday, their remarks are expected to avoid policy topics. With the Fed sidelined, markets will look to Thursday’s preliminary S&P Global Purchasing Managers Index (PMI) data and Friday’s Durable Goods orders for fresh clues on the US economy and the Fed’s next move.
Source: FXstreet
