The dollar eased to a fresh 3-1/2-year low on the euro on Thursday as concerns about the future independence of the U.S. Federal Reserve undermined faith in the soundness of the country's monetary policy.
According to a Wall Street Journal report, U.S. President Donald Trump had toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October, aiming to undermine his position.
"Markets are likely to bristle at any early move to name Powell's successor, particularly if the decision appears politically motivated," said Kieran Williams, head of Asia FX at InTouch Capital Markets.
"The move would raise questions about the potential erosion of Fed independence and potentially weaken credibility," he added. "If this was the case it could recalibrate rate expectations, trigger reassessment of dollar positioning."
Trump on Wednesday called Powell "terrible" for not lowering interest rates sharply, while the Fed Chair was telling the Senate that policy had to be cautious as the President's tariff plans were a risk to inflation.
Markets have nudged up the chance of a rate cut at the Fed's next meeting in July to 25%, from just 12% a week ago, and are pricing in 64 basis points of cuts by year-end, up from around 46 basis points last Friday.
The dollar slipped across the board as the euro gained 0.2% to reach $1.1687 , its highest since October 2021. The next chart targets were $1.1692 and $1.1909.
Sterling rose 0.2% to $1.3690, its highest since January 2022, while the dollar was at its lowest against the Swiss francs since 2011 at 0.8033 . The franc also struck a record peak on the yen around 180.55 .
The dollar dipped 0.2% on the yen to 144.89 , while the dollar index sank to its lowest since early 2022 at 97.491 .
Trump's chaotic tariff policies are also coming back into focus as the clock ticks down to his July 9 deadline for trade deals.
JPMorgan on Wednesday warned the hit from tariffs would slow U.S. economic growth and lift inflation, resulting in a 40% chance of a recession.
"The risk of additional negative shocks is elevated, and we expect U.S. tariff rates to move higher," JPMorgan analysts wrote in their report. "The upshot of these developments is that our baseline scenario incorporates the end of a phase of U.S. exceptionalism."
The ending of "exceptionalism" has been a major theme in the dollar's decline in recent months, as investors question its dominant reserve currency status and as the main safe haven among currencies.
The euro has been a big beneficiary, with investors also hoping that massive new investment in European defence and infrastructure will bolster economic growth across the continent.
