Powell on the plank, Trump with the torch — Asia eyes the fallout

Asia wakes up this morning to the smell of burnt policy paper and half-cooked credibility, as the Trump-Powell circus steals the overnight spotlight like a rogue firework at a festival. For traders rubbing the sleep out of their eyes in Tokyo, Singapore, and even here in Bangkok, the show has already gone halfway through its act—but the consequences will keep being debated, and perhaps even the screens will start showing some risk-off action.

Midway through the U.S. session, markets went into DEFCON 2 as CBS dropped the bomb: President Trump was reportedly preparing to replace Fed Chair Powell. Cue the immediate market reactions—USD sold like yesterday’s headline, short-term Treasury yields dropped like a poorly thrown dart, and equities declined, though not sharply. The S&P 500 never fell more than 1%, but it was enough of a shake to prompt rate traders to add 10 more basis points of expected cuts for 2025. Curve steepening added the exclamation mark, as no one wants to own long-dated US paper with a rudderless Fed. (Options and betting markets, however, have never really priced in a high likelihood of Trump firing Powell, hence the muted market reaction.)

Then, like a magician realizing the audience wasn’t buying the trick, Trump stepped back from the ledge—sort of. Yes, he’d spoken about firing Powell, but no, he wasn’t planning to actually do it. “Highly unlikely,” he said, as if that’s the kind of reassurance bond desks crave.

The damage was partially reversed. Stocks dusted themselves off, the dollar crawled up from the floor, and yields found a tentative bid. But the swagger wasn’t quite back. Short-end rates and the greenback didn’t bounce like they used to—perhaps markets have learned that even if Trump doesn't fire Powell, the mere thought that he might is enough to destabilize the compass.

As Asia settles in for its session, this Trump-Powell tension isn’t going anywhere. It’s the kind of risk that lingers—less a flashbang, more a simmering pot left on high. If Trump does pull the trigger, it would be historically seismic—no president has ever fired a Fed Chair mid-term. But he’s already shattered enough norms that the market is past being shocked—jaded, maybe, but not surprised.

Traders in the region should keep their eye on the Powell saga, but don’t forget the supporting cast: earnings season’s rolling in like a tide, and every revenue miss or margin squeeze has the potential to swing sentiment. Tariffs remain an ever-present ghost, especially for exporters. And of course, data—particularly anything that can be construed as inflation put through prints—will act as the referee for rate expectations.

The broader DXY is caught between political theatre and rate path speculation. There’s no clear hero in this story—just a lot of characters, some chaos, and the occasional trade that holds up long enough to pay the bills.