Dollar, Treasury prices tumble after report Trump to fire Fed’s Powell

LONDON/NEW YORK (Reuters -The dollar fell sharply on Wednesday after Bloomberg, citing an unidentified White House official, reported U.S. President Donald Trump is likely to fire Federal Reserve Chair Jerome Powell soon.

The dollar fell by as much as 0.7% against a basket of major currencies in a matter of moments after the news hit, while rate-sensitive areas of the market such as U.S. regional banking shares fell and gold rallied.

Longer-dated Treasuries sold off, leaving the 30-year bond yielding 5.06%, up nearly 5 basis points on the day. It had traded earlier at a low of around 4.97%, down 5 bps from Tuesday.

Investors had been on edge for weeks about the prospect of Powell being removed from his job before his term ends next May, as Trump has repeatedly criticised him for not cutting U.S. rates quickly enough.

COMMENTS:

FRANCESCO PESOLE, FX STRATEGIST, ING, LONDON:

“If we get a headline today on Powell (removal), then we are looking at much more bigger sell-off in the dollar. Federal Reserve independence is the foundation the U.S.’ status as the No.1 reserve currency.”

“Given the implications of removing a Fed chair, the reaction is still relatively contained. Euro/dollar is at $1.17 and should be trading higher on this, because the implications are massive. Markets are still not fully pricing this all in. You would expect that if Powell is removed today, then the Fed cuts in September.”

CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG, LONDON:

“The news has put the dollar firmly on the back foot but has dragged stocks lower too. The Fed chairman’s departure would leave the independence of the central bank in question. It seems likely that his (Trump’s) recent successes in passing his tax and spending bill, and the ceasefire in the Middle East, have emboldened the president to act.”

“Now we will see if the bond market vigilantes will put the U.S. in their sights again. Such a dramatic move also suggests there is no backing down from tariffs this time around, especially with stocks at record highs.”

LEE HARDMAN, SENIOR CURRENCY ANALYST, MUFG, LONDON:

“If that does happen (Trump fires Powell), it would be very damaging for investor confidence in the dollar, that’s why we’re starting to see the heavy selling, and it could extend further if he were to do so.

“It’s not clear-cut whether Trump has the power to fire Powell, so we would expect to see a legal challenge very quickly, but even if it were overruled, the hit to confidence would be long lasting, and it reinforces our bearish outlook on the dollar.”

(Reporting by EMEA and U.S. breaking news teams; Compiled by Amanda Cooper; Editing by Elisa Martinuzzi and Dhara Ranasinghe)