USD Under Pressure: Political Turmoil Shakes the Markets

Sudden Slide: The U.S. dollar lost much of last week’s gains, with its index slipping about 0.4% against major currencies. The drop came after Federal Reserve Chair Jerome Powell revealed that he faced threats of criminal charges linked to his testimony before Congress, raising alarm over the independence of the central bank.

Independence at Risk

Powell explained that the pressure stemmed from the Fed’s refusal to bow to political calls for lower interest rates. He stressed that decisions are made in the public interest, but admitted the institution is under unprecedented strain. Investors fear that political interference could undermine confidence in monetary policy.


Global Policy Divide

Markets now see only a slim chance of a rate cut at the Fed’s January meeting. Looking ahead to 2026, forecasts suggest the Fed may trim rates modestly, while Japan’s central bank could raise them and Europe’s may hold steady. This divergence adds weight against the dollar, widening yield gaps with other currencies and weakening U.S. assets.

Liquidity Pressures

The dollar also faces headwinds from increased liquidity. Since December, the Fed has been buying $40 billion in U.S. Treasury bonds each month—a move that typically expands money supply and drags on the currency.

Leadership Uncertainty

Adding to the tension, President Trump announced he will name a new Fed chair early in 2026. Speculation points to Kevin Hassett as the frontrunner, seen as favoring easier monetary policy. Such a shift could further pressure the dollar at a critical moment.