U.S. dollar falls sharply vs euro and Swiss franc following Powell indictment threat

The likeness of George Washington is seen on a U.S. one dollar bill in Marple Township, Pa. (AP Photo/Matt Slocum, File)

The U.S. dollar on Monday fell sharply against the euro and the Swiss franc while edging lower versus the Japanese yen after the Trump administration threatened Federal Reserve Chair Jerome Powell with a criminal indictment, a move that could endanger the greenback’s safe-haven status.

The dollar index, which measures the greenback’s strength against a basket of six currencies, was recently 0.37 per cent lower at 98.759, snapping a five-day winning streak. Gold jumped to a record US$4,600.33 per ounce after Powell released a video where he defended the central bank’s independence.

“The point is that the central bank’s response function is likely to change fundamentally and in the long term if the White House succeeds (in gaining control of monetary policy),” said Thu Lan Nguyen, head of forex and commodity research at Commerzbank, after flagging that the Fed is already in a rate-cutting cycle and this scenario becomes relevant only if inflation risks rise.

“However, as the foreign exchange market is forward looking, this already justifies a higher US dollar risk premium today,” she added.

Some analysts said markets had not yet panicked because they expect U.S. President Donald Trump to appoint a credible successor to Powell and let that person steer policy.

The Swiss franc was the best performer on Monday, rising 0.52 per cent to 0.7968 against the dollar, while the euro continued to benefit as U.S. politics triggered a selloff in American assets.

The single currency rose 0.44 per cent to 1.1688 in its biggest daily rise since Dec. 10.

The dollar advanced in early Asian trade to a one-month high after Friday’s jobs report bolstered expectations that the Federal Reserve will hold interest rates steady later this month, while reports of hundreds of deaths during protests in Iran heightened geopolitical tensions and stoked demand for safe-haven assets.

Against the yen, the U.S. dollar was recently 0.1 per cent weaker at 157.80 yen, not far from its highest point in a year.

On Sunday, the coalition partner of Japanese Prime Minister Sanae Takaichi’s party said she might hold a snap election on Feb. 8 or 15, a move that made investors cautious. On Friday, media outlets reported she was considering a vote in February, citing government sources.

Geopolitical tensions in Iran “should be positive for the U.S. dollar but we haven’t seen any upside there yet,” said Kyle Rodda, senior market analyst at Capital.com in Melbourne. “The question from here is whether the momentum behind the protest movement continues and whether the regime cracks down even harder, opening the door to some U.S. involvement.”

Trump said the U.S. might meet Iranian officials and was in contact with the opposition, as he weighed a range of responses including military options.

Financial markets are preparing for a busy data calendar this week, with Tuesday’s release of the U.S. consumer price index for December providing one of the last key economic releases before the Fed’s next monetary policy meeting at the end of January.

A ruling from the U.S. Supreme Court on the legality of Trump’s emergency tariffs could also be released as soon as Wednesday. The U.S. Treasury has more than adequate funds to pay any tariff refunds ordered if the Supreme Court rules against Trump’s emergency tariffs, U.S. Treasury Secretary Scott Bessent said on Friday.

Against the Chinese yuan trading offshore in Hong Kong <CNH=D3>, the U.S. dollar shed 0.1 per cent of its value to 6.9706 yuan, its softest level in a week, approaching its weakest since May 2023.

The appreciation of the Chinese yuan against the U.S. dollar does not necessarily indicate a revaluation of the currency or Chinese assets, as it lacks support from underlying fundamentals, a former foreign exchange regulator said in a blog late on Sunday.

(Reporting by Stefano Rebaudo and Gregor Stuart Hunter; Editing by Jacqueline Wong and Thomas Derpinghaus)