Currency sell-off intensifies after president steps up criticism of central bank head for not cutting rates

Wall Street shares and the US dollar nosedived amid growing uncertainty about the US economy as President Donald Trump renewed his criticism of Federal Reserve Chair Jay Powell.

Shortly after the market opened on Monday, Trump took to his Truth Social platform, labeling Powell as “Mr Too Late” and demanding that he lower interest rates “NOW” to jump-start the economy.

Following Trump's post, US stocks fell further. The S&P 500 closed the day down 2.4 percent, with over 90 percent of its stocks trading in the red. The Nasdaq Composite, heavy on tech names, dropped by 2.6 percent.

This market reaction followed comments from Kevin Hassett, director of the National Economic Council, who noted on Friday that Trump would “continue to study” the option of dismissing Powell after the president had claimed the previous day that he possessed the authority to fire the Fed chair.

Trump’s recurring criticism has centered on Powell’s perceived slowness in lowering interest rates, while Powell has maintained that he will not let political pressures dictate monetary policy.

“If you think that it’s unacceptable for President Trump to be frustrated with the policy history of the Fed, then I think you… got some explaining to do,” Hassett said to reporters on Friday in Washington, when the markets were closed.

The dollar slipped as much as 1.5 percent, reaching a three-year low against a basket of its major trading partners. In contrast, the euro rose by 1.1 percent to $1.154, and the yen appreciated by 0.9 percent to ¥140.84 per dollar.

US Treasury securities were also hit. The yield on the 10-year US Treasury climbed 0.08 percentage points to 4.41 percent following Trump’s social media post, reflecting the inverse relationship between bond prices and yields.

“The idea that Powell could be on the way out will definitely put real fear into the market. He’s a voice of sanity, a known quantity,” said Steven Grey, chief investment officer at Grey Value Management.

Grey noted that Monday’s avoidance of dollar-denominated assets was also driven by broader worries about increasingly erratic US policymaking. “Trump is unreliable, he cannot be trusted. What many foreigners are inferring from Trump’s getting elected twice is that America itself cannot be trusted or relied upon to the extent that it has been for many decades.”

Yujiro Goto, a forex strategist at Nomura Securities, commented that it was unusual for bond sell-offs and currency depreciation to occur simultaneously in a major reserve currency market like that of the US. He attributed the yen’s gain to mounting concerns about US “stagflation” and a “growing distrust in US asset credibility.”

Analysts at CICC, a Chinese investment bank, reported on Sunday that the prevailing domestic policy uncertainty in the US was causing the dollar and Treasuries to “act more like risk assets.” They further observed that Trump’s recent remarks concerning Powell had “further heightened market concerns about the Federal Reserve’s independence.”

Michael Feroli, chief US economist at JPMorgan, stated in an investor note, “Any reduction in the independence of the Fed would add upside risks to an inflation outlook that is already subject to upward pressures from tariffs and somewhat elevated inflation expectations.”

Thus far this year, the central bank has held rates steady after three cuts in 2024. Its next meeting is scheduled for May.

The Fed continues to set monetary policy independent of the other branches of government. Investors and analysts warn that any attempt to remove Powell, whose term ends in May 2026, or any action perceived as undue political influence on monetary policy, could trigger further turmoil in US markets.