The Swiss franc and the euro experienced a significant rally against the dollar following alarming threats from the Trump administration towards Federal Reserve Chair Jerome Powell, which could potentially jeopardize the dollar’s standing as a safe-haven currency. Powell revealed that the Department of Justice had issued grand jury subpoenas to the Federal Reserve, hinting at a possible criminal indictment related to his previous testimony before the Senate Banking Committee.
The dollar index, indicative of the currency’s strength against a basket of six others, declined by 0.35% to 98.78, breaking a recent five-day winning streak. In a striking response to this political turbulence, gold surged to an unprecedented price of $4,600.33 per ounce after Powell defended the independence of the central bank in a recent video statement.
Atakan Bakiskan, an economist at Berenberg, commented on Powell’s stance, noting that while he remains unyielding, his term as Fed Chair is set to end in May 2026, although he may continue as a board governor until January 2028. Thu Lan Nguyen, from Commerzbank, expressed concerns regarding the potential long-term implications for the Fed’s monetary policy should the White House gain control over it, especially given the central bank is already on a path of rate cuts.
The Swiss franc stood out as the top performer on Monday, gaining 0.42% to reach 0.7976 against the dollar, while the euro surged by 0.41% to 1.1684, marking its largest daily increase since December 10. U.S. Treasuries faced heightened selling pressure, particularly affecting longer maturities, with the 30-year yield climbing by 4 basis points to 4.86%.
Despite these shifts, the market appears hesitant to factor in a loss of Fed independence. Francesco Pesole, an ING strategist, highlighted that traders believe Powell will maintain his resolve in policy matters. Goldman Sachs chief economist Jan Hatzius suggested that although the threat of indictment may raise concerns over the central bank’s autonomy, he anticipates that the Fed will continue making decisions based on economic data.
Rogier Quaedvlieg, a senior economist at Abn Amro, noted that this challenge to the Fed’s autonomy could indeed compel the Federal Open Market Committee (FOMC) to adopt a more hawkish posture in order to safeguard the institution’s integrity. The latest employment reports support a stable interest rate policy for the time being.
Meanwhile, the dollar showed strength during early Asian trade, hitting a one-month peak as improved job reports fueled expectations for steady interest rates from the Fed. Geopolitical issues notably lingered, especially with recent protests in Iran resulting in numerous casualties, adding to international tensions.
In Japan, political dynamics are shifting as coalition partners of Prime Minister Sanae Takaichi are contemplating a snap election in February, aiming to leverage her favorable public approval ratings following her ascension in October. Takaichi’s policies, advocating increased spending and a more lenient stance from the Bank of Japan, have negatively impacted the Japanese yen.
Investors are on edge as they prepare for a week rich with data releases, including the U.S. consumer price index for December, which could offer insights into the Fed’s future policy direction. Furthermore, a significant ruling from the U.S. Supreme Court regarding the legality of Trump’s emergency tariffs is anticipated, with U.S. Treasury Secretary Scott Bessent affirming sufficient funds are available to manage any necessary tariff refunds should the court rule against the tariffs.
This dynamic interplay of financial markets amidst political pressures highlights the importance of vigilance for investors, as the evolving landscape could bring both challenges and opportunities.