Trump’s Threats to Powell Puts Dollar’s Safe Haven Tag Under Test

Investor sentiment towards US assets took a hit this week amid growing concerns that President Donald Trump may follow through on his threats to dismiss Federal Reserve Chair Jerome Powell. Fears are mounting that such a move could undermine the central bank’s independence and push the US economy into a tailspin.

Trump doubled down on his call for the Federal Reserve to cut interest rates, posting on Truth Social Monday that “‘Pre-emptive cuts’ in interest rates are being called for by many,” reigniting pressure on the central bank to resume its policy easing cycle.  Worries of a potential recession, fuelled by Trump’s increasingly combative stance toward Powell, have sent the US dollar on a continued downward spiral.

The greenback reacted accordingly, hitting its lowest level since 2022, as mounting tension between President Donald Trump and the Federal Reserve prompted global investors to pull back from US assets. The US Dollar Index, which tracks the greenback against a basket of foreign currencies, dropped as low as 97.92.

Since Trump’s inauguration, the dollar has faced relentless selling pressure, falling from a January peak of 110 to now below 98. Trump’s April 2 tariff announcements and the wave of uncertainty that ensued has been the biggest blow to the greenback.

To that effect, the recent criticism of Fed Chair Powell, whom Trump labelled “Mr Too Late” and “a major loser” on Truth Social, alongside reports that the White House is exploring ways to dismiss him, have only deepened investor concerns and weighed further on the currency.

The decline of the US dollar caught many market participants off guard, as it was previously expected to strengthen under Trump’s pro-America stance. However, the President’s tariff decisions and emphasis on focusing on ‘Main Street’ over ‘Wall Street’ have led some to believe that the US’s economic growth may take a back seat in pursuit of Trump’s broader policy goals.

Trump’s flip-flops on the tariff front, combined with his threats of removing Powell, have together put the safe haven status of the US dollar into question. On the other hand, the rollercoaster of volatility seen across global financial markets has led investors to flee to another ‘safe haven’ asset—gold, in the flight for safety.

On that account, while the US dollar is going through a period of decline, the yellow metal is clocking in higher highs with each passing day. The drop in the greenback has also led other safe haven currencies like the Japanese yen, the Swiss franc, and the euro to appreciate against the US dollar.

Sugandha Sachdeva, Founder, SS WealthStreet, who has an extensive experience covering currencies and commodities, stated that the freefall in the US dollar was a result of investors’ shaken confidence in the reserve currency due to the disruptions in the world trade order caused by Trump’s tariffs.

In addition to that, Sachdeva also noted that the push for trade in local currencies by other economies and the high debt levels of the US are also making investors lose faith in the greenback, pushing central banks to take the gold route, the only other safe haven at par with the dollar.

Meanwhile, there’s also fear that in order to retaliate Trump’s reciprocal tariffs, some countries may even go ahead and sell their US Treasury holdings, which is also responsible for the sliding greenback,” Sachdeva added.

Taking on a bearish outlook, global investment firm HSBC stated that it anticipates short-term weakness in the US dollar as compared to its Asian peers. “As investors rotate away from US assets, we are bearish on the US dollar but expect gold to benefit,” the firm wrote.

Sachdeva echoed a similar sentiment, forecasting a further fall in the dollar towards levels of around 95, post which, she expects the greenback to make some recovery.