Dollar weakens as Donald Trump considers naming next Fed chair early

By Ruth Carson and Winnie Hsu

 

The dollar fell on speculation US interest-rate cuts may come sooner and go further than currently priced into markets as President Donald Trump ratchets up pressure on Federal Reserve Chair Jerome Powell.  ALSO READ: Trump calls Jerome Powell 'real dummy', 'worst' as Fed holds rates steady

 

Bloomberg’s gauge of the greenback dropped to the lowest level in three years after the Wall Street Journal reported Trump may announce Powell’s replacement by September or October. Traders are viewing the news as a signal that early rate cuts are becoming more likely, given Trump has repeatedly called on Powell to lower borrowing costs.  

 

 

“It does effectively make Powell less influential as everyone moves their attention to the incoming chair,” said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. “So it’s a dovish tilt.” 

 

The latest headlines on Powell add another element of risk to the dollar and US Treasuries, which are both falling out of favor due to uncertainties around the impact of tariffs and a ballooning fiscal deficit. 

 

Bloomberg’s dollar gauge fell as much as 0.4 per cent to the lowest since April 2022. The index has now dropped more than 8 per cent this year. Traders have boosted bets on Fed rate cuts in recent days, and are now pricing in 66 basis points of easing by year-end versus 51 basis points at the end of last week, based on overnight-indexed swaps.

 

The greenback weakened against all of its major peers Thursday, with the currencies of Taiwan, South Korea and South Africa the biggest gainers.  

 

“This is definitely weighing on the big dollar,” Ignatius Pang, head of foreign-exchange sales and execution for Asia at Union Bancaire Privee, said of the news. Episodes of US currency strength are “opportunities to actually look at diversifying” dollar holdings, he said. 

 

Potential replacements for Powell include Fed governor Kevin Warsh and National Economic Council director Kevin Hassett, the Wall Street Journal reported, citing people familiar with the matter. 

 

What Bloomberg strategists say: 

 

“Investors will read the prospect of President Trump naming a new Federal Reserve chair by October as a signal that early interest-rate cuts are more likely. Traders are pricing for a Fed rate cut in September, but this potential twist raises the stakes for July to be taken seriously for a 25-bp reduction.”

 

Mark Cranfield, Markets Live strategist

 

Trump said on Wednesday he had three or four people in mind to succeed Powell, whose term as chair ends in May 2026. The president has lashed out at the Fed’s position to keep rates on hold, arguing for cuts and saying the central bank is keeping borrowing costs for the US government high. 

 

“It’s fair to suggest that the pressure on Powell to cut rates will increase, and that’s adding to selling pressure on the dollar,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney.