Dollar weakens amid political uncertainty around the Fed

On June 26, the U.S. dollar index (DXY) fell below 97 points — its lowest level since early 2022. The decline in the American currency was triggered by heightened market expectations following Donald Trump's comments about a potential replacement for the chair of the Federal Reserve.

Against this backdrop, the euro climbed above $1.17 — a level not seen since late 2021. This market behavior is driven less by macroeconomic data and more by concerns over political interference in monetary policy.

Trump hints at Powell’s replacement — markets react

During a press conference, Donald Trump stated that he is considering several candidates to lead the Federal Reserve, including some of his own economic advisers. He also criticized the current leadership of the central bank, calling Jerome Powell ineffective and outdated in his approach.

These statements placed additional pressure on the dollar. Financial markets interpret this as a signal that the next Fed chair may lean more toward the White House’s political agenda — potentially easing monetary policy even in the face of high inflation.

How rate expectations have changed

In response to the growing political risks and uncertainty, investors have started to adjust their expectations:

• The likelihood of a rate cut in July increased from 12% to 25%;
• By the end of 2025, markets are now pricing in a total rate cut of around 60–65 basis points;
• Yields on short-term U.S. bonds have dropped, along with demand for long-term Treasuries.

Previously, most expected the Fed to keep the current rate of 4.25–4.50% at least until autumn. But the intensifying pressure from the executive branch has shifted that outlook.

What this means for global markets

When a central bank comes under political pressure, the currency market starts to lose confidence. Even without an official change in leadership, risk perceptions are already shifting.

This manifests in several ways:

• declining trust in the dollar as a reserve currency;
• growing interest in the euro, Swiss franc, and Japanese yen;
• capital outflows from dollar-denominated assets;
• increased volatility in both currency and bond markets.

Investors now face a dilemma: wait for official decisions or start adjusting their strategies early.

In summary

The currency market is under pressure due to political signals from the White House. While no formal changes have occurred yet, the remarks alone have already impacted the dollar and expectations for the Fed’s policy path.

This serves as a reminder for market participants: economic indicators aren’t always the primary market drivers. Sometimes, a single phrase — especially from a sitting or future president — can move markets as much as a central bank’s decision.

In times of elevated uncertainty, the key is to maintain a clear-eyed view of risk and avoid overreacting to short-term swings.