(Bloomberg) — The sell-America trade gathered momentum on Monday on concern President Donald Trump will act upon his threat of firing Federal Reserve Chairman Jerome Powell and implement policies that lead to a recession.
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The dollar, US stock futures and Treasuries slid, pushing the yield on 30-year bonds higher by as much as 10 basis points in thinner-than-normal, post-holiday trading. Investors are grappling with the risk of Powell’s dismissal, which the White House said last week it was assessing, and the implications of his policies on the world’s largest economy.
“At a moment in which the administration has already instilled ever-higher levels of uncertainty into the economic outlook, any attempt to remove Powell will add to the downward pressure on US assets,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
While legal scholars say that a president can’t dismiss a Fed chair easily, and Powell has said he wouldn’t resign if asked by Trump, the speculation is dealing US assets a fresh blow. Washington’s aggressive trade tariffs have already fanned fears of a recession and fueled doubts about the status of Treasuries as the haven of choice.
The mix of risks is fueling concern about the paths of growth and inflation — and how the Fed can balance them. While traders are pricing in at least three interest-rate cuts in the US this year, former New York Fed President Bill Dudley wrote in a Bloomberg Opinion column that policymakers will likely move slower than anticipated.
The Bloomberg Dollar Spot Index fell as much as 1% to the lowest level since late 2023 on Monday, before slightly trimming the move. The yen strengthened to a level last seen in September, while the euro rallied to the highest in more than three years.
The shared currency is now trading at around $1.15, close to the most bullish year-end forecasts from strategists. The yen, at around 140.50 per dollar, is stronger than the median year-end target of 143, Bloomberg data shows.
“Trump’s musings on the potential for firing Fed Chair Powell, even if such thoughts don’t come to fruition, do in the minds of the international community constitute a substantial threat to the independence of the US central bank and by extension the status of the dollar as a safe haven currency,” said Monex foreign-exchange trader Helen Given.