Teflon Dollar shrugs off the Teflon Don

The Dollar started the week on the backfoot after the Department of Justice issued a subpoena to Fed Chairman Powell, on the charge of lying to congress regarding how much recent renovations to Fed properties.

This incident is yet another step on the long winding road to a weaker Fed more beholden to the White House. Naturally, the softening in the USD is the market casting its vote on this move, clearly not being supportive as USD softened further.

Given Trump will be replacing Powell in May anyway as his second term has ended, it may seem petty to some, but perhaps as an early warning to his successor of the cost making rational decisions he doesn’t like.

A reduced Fed by the end of the year seems almost certain, with Kevin Hassett, one of the most favoured potential replacements for Powell, touting his “daily phone calls” with the President. It seems likely that this will mean lower future rates and that’s before you consider how much a fully independent Fed is worth to the Greenback.

Which a question I suspect that will prove over the next few years, Monday’s reaction was negative, but the DXY was only -0.24% lower on the day, which it had recovered entirely by Tuesday’s close.

The most recent jobless claims data came in (barring November ’25) at its lowest rate since January 2024, whilst PMI data continues to suggest a robust underlying economy. Trump’s foreign policy endeavors have also seemingly reimbued the President after a poor run throughout much of last year. It seems likely he will now focus this energy onto the Fed, with little regard of the cost to the Dollar, or to the global economic system.