Dollar Slides as Scrutiny of Fed Leadership Rekindles Policy Concerns

Key Moments

Political Turbulence and Fed Independence Under the Microscope

The week opens with renewed political drama surrounding U.S. President Trump and the Federal Reserve, setting a volatile tone early in the 2026 calendar year.

Headlines from earlier in the day highlighted intensifying scrutiny of Federal Reserve Chair Jerome Powell:

“NYT: Federal prosecutors open probe into Fed chair Powell amid renovation scrutiny”

“Fed Chair Powell calls out Trump on his witch hunt, part of ongoing threats against central bank”

The probe into Powell is described as unprecedented and amplifies existing concerns over the political pressure facing the central bank. While tensions between the administration and the Fed are not new, the latest developments arrive at a particularly delicate moment as the institution moves toward a leadership transition.

Fed Transition Heightens Sensitivity

Powell’s term as Fed chair is scheduled to conclude after May this year, and he is expected to exit any remaining roles at the central bank afterward. With only a few months left in his tenure, the timing of the probe raises questions about the intended outcome of the move from the Trump administration.

The episode appears aimed at sending a signal not only to Powell but also to the broader policymaking community. The next Fed chair is already viewed as likely to be closely aligned with Trump, but the current pressure campaign is framed as a wider challenge to the central bank and to any officials who might obstruct the administration’s push for lower interest rates.

Against a backdrop of mounting fiscal risks in the U.S., the president is portrayed as seeking to tightly manage this aspect of economic policy to avoid negative perceptions. The open question is how much credibility and stability might be sacrificed in the process.

Dollar Weakness Resurfaces

The U.S. dollar is bearing the brunt of investor unease. The currency had already seen confidence erode last year, and early trading in the new year is showing a continuation of that pattern, with the latest political developments serving as a fresh reminder of the risks.

On the day, the greenback is weaker across the board, with modest losses against major counterparts:

EUR/USD Attempts a Near-Term Recovery

EUR/USD is drawing fresh buying interest as traders look to challenge recent downside momentum. The pair is up 0.3% on the day at 1.1677, with price action nudging back above its 100-hour moving average, identified by the red line on the hourly chart.

The pair had been retreating since being rejected at the 1.1800 area, but this move marks what appears to be the first concerted attempt by buyers to reclaim some short-term control. As outlined, the 100-hour moving average remains a key reference point: a sustained move below it leaves the near-term bias more bearish, while a decisive break above would shift the bias to a more neutral stance.

Broader FX Moves: CAD and AUD Strengthen Modestly

Beyond the euro, the dollar is also softening against other major currencies. USD/CAD is down 0.3% to 1.3878, reflecting a firmer Canadian dollar. Meanwhile, AUD/USD is up 0.3%, with the Australian dollar once again regaining the 0.6700 handle.

Precious Metals Extend Rally

Precious metals are the standout beneficiaries of the current environment. Building on a strong move from Friday, gold prices are climbing further, rising 1.7% to $4,585. Silver is outperforming even more sharply, jumping another 5% to $84.11 at the time of writing.

The latest surge underscores the continued appeal of gold and silver as investors react to currency weakness and heightened uncertainty around U.S. monetary policy and central bank independence. The author characterizes the move succinctly: “Fire. 🔥”