The US dollar slipped against its global currency peers after the US Department of Justice opened a criminal investigation against the central bank.
USDX – Daily Chart
The USDX price was moving toward the key 100 level, but it has now failed, and there is a risk of a return to the 98.00 support level.
Goldman Sachs’ chief economist, Jan Hatzius, warned that the criminal indictment of Federal Reserve Chairman Jerome Powell has reinforced concerns that central bank independence is being undermined. It also brings the risk of a market upheaval as the investigation continues.
“Obviously, there are more concerns that Fed independence is going to be under the gun, with the latest news on the criminal investigation into Chair Powell really having reinforced those concerns”.
“I have no doubt that he (Powell) in his remaining term as chair is going to make decisions based on the economic data and not be influenced one way or the other, cutting more or refusing to cut on the back of data that could push in that direction,” Hatzius added.
Markets are unsettled on fears that Trump is meddling too much in policy, which has been set independently by the Fed. The Federal Reserve carefully uses data sets on inflation and jobs to set monetary policy, but Trump believes he knows best and wants to enforce interest rate cuts.
He believes consumers will spend more and roar back to life, but he overlooks that confidence and wealth drive those dynamics. Recent trends in the jobs market and consumer confidence suggest a recessionary environment, and conditions could worsen if the data weaken further.
The investigation is related to Powell’s testimony earlier this year about a multi-year renovation of the Federal Reserve buildings, Powell said. But he also blamed Trump’s hostile stance toward the bank’s independence and his prior comments about the Fed Chair’s decisions.
“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said.
The dollar’s woes pushed gold and silver higher, and investors sought safe havens. Powell’s term is set to end in May, and it’s possible that the investigation could halt any potential rate cuts that were expected.
