(Bloomberg) — US stock futures and the dollar weakened sharply as traders reacted to the possibility that President Donald Trump will try to remove Federal Reserve Chairman Jerome Powell.
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S&P 500 futures sank 1% and the dollar index weakened to a 15-month low with Wall Street set to re-open after the Easter break. Gold jumped above $3,380 an ounce. On Friday, National Economic Council Director Kevin Hassett said that Trump is studying whether he’s able to fire Powell.
Trump — frustrated that the central bank hasn’t moved to lower interest rates — posted on social media last week that Powell’s “termination cannot come fast enough!” Rebuking the Fed undermines the principle of central bank independence and risks politicizing US monetary policy in a way that markets will find deeply unsettling, said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp.
“Frankly, firing Powell stretches belief,” said Wong. “If the credibility of the Fed is called into question, it could severely erode confidence in the dollar.”
The yen, euro and Swiss franc rallied. Brent fell as much as 2% to below $67 a barrel. European stock markets were largely still shut for a public holiday.
The Bloomberg Dollar Spot Index slid 0.9% on Monday. Every Group-of-10 currency gained against the greenback. The jump in the yen weighed on stock indexes in Japan, pushing the Nikkei 225 down 1.3%.
Fed Chicago President Austan Goolsbee warned against efforts to curtail the central bank’s independence. “There’s virtual unanimity among economists that monetary independence from political interference — that the Fed or any central bank be able to do the job that it needs to do — is really important,” Goolsbee said on CBS’s Face the Nation on Sunday.
Trump would put the credibility of the dollar on the line and destabilize the US economy if he fired Powell, French Finance Minister Eric Lombard warned.
In a sign that investors are rotating investments away from the US, Deutsche Bank AG said that Chinese clients have reduced some of their Treasuries holdings in favor of European debt. European high-quality bonds, Japanese government bonds and gold are likely to be the potential choices for investors as alternatives to Treasuries, said Lillian Tao, head of China macro and global emerging market sales at the bank.
