- Reports surfaced that Trump was exploring ways to remove Powell from office.
- The ECB cut interest rates last week and left the door open for further cuts.
- The Bank of Canada paused its easing cycle last week.
Currency futures rallied on Monday as the dollar weakened, with investors losing confidence in the US economy. The move followed reports that Trump plans to shake up the Fed and likely fire Powell, which would further cloud the outlook for the US economy.
Dollar spot index (Source: Bloomberg)
The dollar resumed its decline on Friday after reports surfaced that Trump was exploring ways to remove Powell from office. The news escalated concerns about the stability of the US economy. Moreover, it meant Trump was ready to undermine the independence of the US central bank.
So far, Trump’s aggressive moves on trade policy have had a significant impact on the US economy, which will be felt in the coming months. Therefore, investors are worried about the future if he takes over monetary policy as well.
Trump paused reciprocal tariffs on many countries for 90 days. However, the trade war between China and the US persists, straining both economies. The Fed is worried inflation will spike and growth will stall. Therefore, policymakers have to balance growth and price pressures. It is for this reason that Powell prefers to wait on the sidelines to see whether they must cut interest rates.
However, there was some relief last week after data revealed stronger-than-expected consumer spending in March. US retail sales increased by 1.4%, compared to estimates of 1.3%. Moreover, it represented a significant increase from the previous month. However, policymakers will likely wait for future data to reflect the impact of Trump’s tariffs.
The euro rallied on Monday as the dollar weakened. However, the European Central Bank cut interest rates last week and left the door open for further cuts. ECB President Lagarde said Eurozone growth will suffer due to Trump’s tariffs. Therefore, there will be pressure on the central bank to lower borrowing costs.
Meanwhile, the Bank of Canada paused its easing cycle last week, allowing the Canadian dollar to rally. The central bank paused after seven cuts. However, market participants believe policymakers will resume cuts in the coming meetings. Furthermore, the loonie rebounded as oil prices rose due to concerns about supply. Last week, Trump imposed sanctions on Iran, pausing oil exports.
Meanwhile, data revealed that Australia’s labor market remains resilient. Still, market participants expect the RBA to keep cutting rates due to the impact of Trump’s tariffs on the global economy.
