Quick overview

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The dollar fell to a new 3-1/2-year low against the euro amid concerns about the US Federal Reserve’s future independence, which eroded confidence in the country’s monetary policy.

President Donald Trump considered replacing and announcing Powell’s successor by September or October to weaken Federal Reserve Chair Jerome Powell’s position. He added, “The action would cast doubt on the possible deterioration of Fed independence and possibly damage credibility.”

Trump called Powell “terrible” on Wednesday for not cutting interest rates more aggressively, and the Fed Chair told the Senate that policy needed to remain cautious because the President’s tariff plans posed an inflation risk.  A week earlier, the probability of a rate cut at the July Fed meeting was only 12%.

JPMorgan warned that tariffs would increase inflation and slow US economic growth, raising the risk of a recession by 40%. In their report, JPMorgan analysts stated, “We expect higher US tariff rates, and the risk of additional negative shocks is elevated. Our baseline scenario includes the conclusion of a phase of uncertainty because of these developments.”

Markets are pricing 64 basis points of cuts by year-end, up from about 46 basis points last Friday. The euro rose 0.2 percent to hit $1.1687, its highest since October 2021, leading to an overall decline in the dollar.

The targets for the following charts were $1.1692 and $1.1909. On the yen, the dollar decreased 0.2 percent to 144.89, and the dollar index fell to 97.491, its lowest since early 2022. Additionally, Trump’s unpredictable tariff policies resurface as his trade deal deadline of July 9 approaches.