Dollar Nears Three-Year Low as Trump–Powell Dispute Weighs on Markets

The U.S. dollar saw a modest rebound on Tuesday, though it remained near its lowest level in over three years following fresh criticism of Federal Reserve Chair Jerome Powell by President Donald Trump. At 04:45 ET (08:45 GMT), the U.S. Dollar Index—which tracks the greenback against a basket of six major currencies—rose 0.2% to 98.190, recovering slightly after falling to levels last seen in March 2022 during the prior session.

Fed Independence Under Scrutiny

Investor concerns over the independence of the Federal Reserve intensified after Trump publicly rebuked Powell for not cutting interest rates aggressively enough, signaling a desire to replace the Fed chief. This political pressure threatens one of the fundamental pillars of the dollar’s strength: an autonomous central bank committed to inflation control.

The dollar has been under persistent strain since the onset of Trump’s trade war, which introduced sweeping tariffs on key U.S. trading partners. These policies have undermined investor confidence in the U.S. economy and weakened the perception of American economic leadership.

Powell, in a speech last week, reiterated a cautious stance, emphasizing that the Fed can afford to be patient in assessing policy moves and that rate cuts are not imminent unless it becomes clear that tariffs won’t trigger sustained inflationary pressures.

“President Trump is intensifying pressure on Federal Reserve Chair Jerome Powell to cut rates ‘now,’ threatening one of the foundations of the dollar’s appeal as a global reserve currency: an independent and inflation-responsible central bank,” analysts at ING said in a note. “At the same time, many are speculating that Trump is looking to blame the Fed for the upcoming economic slowdown—an implicit acknowledgment by the administration of growing recession fears.”

Euro Holds Firm Near Three-Year High

In Europe, the euro dipped slightly against the dollar, with EUR/USD down 0.1% to 1.1500 after hitting its highest level in over three years during the previous session. The euro’s recent strength comes despite the European Central Bank’s decision to cut interest rates by 25 basis points last week in an effort to shore up a struggling eurozone economy, which is also bracing for the negative impact of U.S. tariffs.

Analysts suggest that the euro’s gains are being driven less by regional fundamentals and more by outflows from the dollar amid concerns over U.S. monetary policy.

“It is evident that the euro’s fundamental impact on another significant EUR/USD rally would be minimal, as it would primarily benefit from liquidity-seeking flows departing USD assets due to its reserve value,” ING noted. “In other words, a move to 1.20 would be driven entirely by USD factors.”

Pound Advances After Inflation-Driven Repricing

GBP/USD edged up to 1.3375, continuing its upward momentum after touching 1.3421—its highest level since September—at the start of the week. The British pound has been supported by the Bank of England’s decision to keep interest rates steady at 4.5% in March. However, softer-than-expected inflation data has fueled speculation that a rate cut could be on the table as early as May.

Yen Strengthens as Safe-Haven Demand Rises

In Asia, the Japanese yen gained ground, with USD/JPY falling 0.2% to 140.51 after briefly dipping below the psychologically important 140.00 level for the first time since mid-September.

“The yen is the biggest winner in this latest round of USD selling, as it responds to both the equity slump and the risks to Fed independence,” ING analysts stated. “Given the broad attractiveness of the yen as a safe-haven substitute, we don’t see conditions for an immediate reversal of this move.”

Chinese Yuan Firms Despite Trade Tensions

USD/CNY rose 0.3% to 7.3138, even as the People’s Bank of China (PBoC) set the yuan’s daily midpoint significantly stronger than expected on Monday. The move suggests Beijing is attempting to stabilize the currency amid mounting economic and geopolitical uncertainty.

On Monday, China issued a pointed warning to countries considering trade deals with the U.S. that might harm Chinese interests. The Chinese Ministry of Commerce accused Washington of using tariffs and monetary pressure to force nations into limiting trade with China. The warning comes as tensions in the U.S.–China trade conflict escalate, with the U.S. recently imposing tariffs of up to 145% on certain Chinese imports, prompting retaliatory duties from Beijing.