The US dollar index remains under pressure this week as the market focused on the latest issues between Donald Trump and Jerome Powell. The DXY index traded at $99.38 on Friday, a few points above the year-to-date low of $99. This article explores the potential consequences of Trump firing Powell, including the possibility of a US dollar crash.
Donald Trump wants Jerome Powell out
Trump has made it known that he is not a fan of Jay Powell, the Fed Chair he appointed in his first term.
In a statement on Thursday, he criticized Powell for not cutting interest rates even as the European Central Bank (ECB) delivered its seventh cut during this cycle.
Furthermore, Trump stated that he had the authority to fire Powell and replace him. Other Trump officials have hinted that talks were underway to replace him.
In a speech this week, Powell maintained that he was not concerned about his job and that the Constitution protected him, and that it was a matter of law. He said:
“Generally speaking, Fed independence is very widely understood and supported in Washington, in Congress, where it really matters.”
Analysts believe that Trump has no authority to fire Powell and any other Fed Chair, unless of a serious cause. In this case, Trump lacks a genuine reason to implement his firing.
Experts also believe that Trump’s decision would be overruled by the Supreme Court even with its conservative judges.
Read more: Powell warns Trump’s steep tariffs may trigger higher inflation and slow US growth
What if Trump successfully fired Powell?
The US dollar index would likely continue its downward trend if Trump fired Powell and his decision is allowed to stand.
That’s because the Fed is one of the most important institutions in the United States, as it influences monetary policy.
As such, that decision would lead to significant economic risks, as it would lower confidence among both local and international investors.
There are several good examples of this internationally. The most notable example is Turkey, where President Erdogan amended the law, allowing him to appoint and dismiss central bank officials.
Since then, he has fired officials who maintained a hawkish tone due to his aversion to higher interest rates. This explains why the Turkish lira has crashed to a record low over the years.
If Trump is allowed to fire Powell for not cutting rates, he will also have the same power to fire the next Fed Chair if he also fails to do the same.
Similarly, the next US president will have those same powers. And historically, presidents have always prefer low interest rates during their tenure.
The US dollar index would also crash due to rising concerns about its safety as public debt surges, and following Trump’s initiation of his trade war. This explains why investors have continued to buy gold, pushing its price to a record high.
US dollar index technical analysis
DXY index chart by TradingView
The daily chart shows that the DXY index has been in a strong downtrend in the past few months. It crashed from a high of $110 in January to $99.45.
The index has moved below the key support at $100, a psychological level that was also the lowest points in 2024. This price is also the neckline of the inverse cup and handle pattern, a popular continuation sign.
The inverse C&H pattern has a depth of about 9.2%. Therefore, measuring this distance from the lower side of the cup means that it may plunge to $90. Trump’s firing of Powell, and replacing him with a dovish official would supercharge this decline.
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