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The U.S. dollar weakened in European trading on Monday after U.S. prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell, a development that has reignited concerns over the independence of the world’s most powerful central bank.
By 04:25 ET (09:25 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — fell 0.4% to 98.460, putting the currency on course to snap a five-day winning streak.
Markets reacted swiftly after Powell revealed that the Trump administration had threatened him with a potential criminal indictment over testimony he delivered to Congress last summer regarding a costly renovation of Federal Reserve buildings.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said.
The remarks marked a sharp escalation in the long-running standoff between President Donald Trump and the central bank. Investors fear that legal pressure on the Fed’s leadership could undermine confidence in U.S. monetary policy, prompting a reassessment of the dollar’s role as a global safe haven.
The episode has thrust upcoming economic data into sharper focus, particularly Tuesday’s U.S. consumer price index for December. The inflation report will be one of the final major data points ahead of the Federal Reserve’s late-January policy meeting and is expected to play a key role in shaping rate expectations.
With political uncertainty now layered on top of a delicate monetary outlook, currency markets are increasingly sensitive to any sign that the Fed’s independence may be compromised — a risk that is already beginning to weigh on the dollar.
