The U.S. dollar slid sharply across major pairs after a formal investigation was launched into Federal Reserve Chair Jerome Powell, raising concerns over monetary policy continuity and Fed independence. Markets reacted with heightened volatility, particularly in USD/JPY and EUR/USD.
- USD/JPY dropped 1.8% to 149.20 amid flight-to-safety sentiment
- EUR/USD rose to 1.0943, its strongest since late December
- US10Y yield fell 12 bps to 4.15%
- DXY declined 1.4% to 103.85
- Investigation focuses on Powell’s communications with Treasury during 2023 inflation period
- Market volatility intensified due to uncertainty over Fed independence and future policy direction
A sudden escalation in regulatory scrutiny of Federal Reserve Chair Jerome Powell has triggered a broad-based selloff in the U.S. dollar, with USD/JPY plunging 1.8% to 149.20 within hours of the announcement. EUR/USD surged to 1.0943, its highest level in three months, reflecting growing skepticism about the Fed’s ability to maintain a consistent policy path. The investigation, initiated by a bipartisan congressional panel, centers on alleged communications with Treasury officials during the 2023 inflation surge and potential influence on market expectations. The move has significantly impacted U.S. Treasury markets, with the benchmark 10-year yield (US10Y) dropping 12 basis points to 4.15%, the lowest since late December. The DXY, a broad measure of the dollar’s strength, fell 1.4% to 103.85, marking its steepest intraday decline since March 2024. Analysts warn that prolonged uncertainty could erode confidence in the Fed’s credibility, especially as markets anticipate potential shifts in rate-setting dynamics if leadership changes emerge. Investors in global equities and fixed-income markets are recalibrating risk exposure, with dollar-denominated assets seeing outflows. International traders are increasingly favoring yen and euro positions, anticipating a weaker dollar environment. The Federal Reserve has yet to issue a public statement, but the absence of immediate clarification has amplified market anxiety. The investigation’s timeline and potential outcomes remain unclear, further fueling volatility across forex and bond markets.