The U.S. dollar came under pressure in European trading on Monday after American prosecutors launched a criminal investigation into Jerome Powell, raising fresh concerns over the independence of the Federal Reserve.
By 04:25 ET (09:25 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — had fallen 0.4% to 98.460. The move likely brought an end to a five-session rally for the dollar.
Powell faces mounting legal pressure
The dollar’s decline followed remarks from Powell, who revealed that the Donald Trump administration had threatened him with criminal charges linked to congressional testimony he delivered last summer regarding a Federal Reserve building renovation.
Powell warned that the situation goes beyond personal legal risk, stressing that it raises fundamental questions about whether U.S. monetary policy can remain guided by economic data rather than political coercion. He said the episode could undermine the Fed’s ability to set interest rates independently.
The development marks a further escalation in the long-running conflict between the White House and the central bank, unsettling investors and reviving fears about political interference in monetary policy.
Analysts at ING cautioned that any additional signs of pressure on the Fed could pose significant downside risks for the dollar. They noted that bond markets will be critical in gauging the fallout, particularly if investors begin pricing in more interest-rate cuts or show concern at the long end of the yield curve. A sharp steepening could weigh heavily on the currency.
CPI data moves into focus
Attention now turns to Tuesday’s U.S. consumer price index for December, one of the final major economic releases ahead of the Federal Reserve’s policy meeting later this month.
ING said it would normally hold a cautiously bullish view on the dollar, expecting core CPI to exceed forecasts at 0.4% month-on-month. However, the bank added that investors may hesitate to rebuild long dollar positions until there is more clarity around the escalating situation involving the Fed.
Meanwhile, Capital Economics struck a more constructive tone, arguing that despite the political noise, the dollar still has underlying support. The firm noted that reduced expectations for U.S. rate cuts compared with other regions have helped keep the currency higher for the year so far, and it expects the dollar to strengthen further into 2026.
European currencies gain ground
In Europe, the euro benefited from the weaker dollar, with EUR/USD climbing 0.5% to 1.1690 after rebounding from a one-month low. With limited eurozone data on the calendar and little recent dissent among European Central Bank policymakers, currency moves were largely driven by U.S. developments.
ING said EUR/USD could slip back toward 1.1600 if concerns over Fed independence fade, but for now sees scope for a bullish move toward the 1.1700–1.1750 range.
Sterling also advanced, with GBP/USD rising 0.5% to 1.3464. The Swiss franc outperformed its G10 peers, pushing USD/CHF down 0.7% to 0.7959. ING highlighted the franc’s role as a preferred hedge against risks tied to U.S. central bank credibility.
Asian currencies edge higher
In Asian trading, USD/JPY eased 0.1% to 157.81, as the yen gained modest support from broad-based dollar weakness. Trading volumes were subdued due to a Japanese holiday.
The pair also retreated from a one-year high after comments from a senior figure in Japanese Prime Minister Sanae Takaichi’s coalition suggested a possible snap election in early February.
Elsewhere, USD/CNY ticked slightly lower to 6.9746, while AUD/USD advanced 0.3% to 0.6703, with the risk-sensitive Australian dollar benefiting from the softer greenback.
