Dollar wobbles as markets fret about threat to Fed independence

Core Viewpoint - The Trump administration's initiation of a criminal investigation into Federal Reserve Chair Jerome Powell has raised concerns about the central bank's independence and has led to market reactions including a sell-off of the dollar and U.S. Treasuries, while some investors sought safety in gold [1][16]. Market Reactions - The market's response involved selling the dollar and U.S. Treasuries, with a more measured sell-off compared to previous events, indicating a belief that the situation may resolve itself [2][16]. - The dollar index fell to 98.92, marking its worst day in three weeks, while the euro remained steady at $1.1663 and sterling at $1.3463 [3][6][16]. Federal Reserve Outlook - Analysts suggest that the Federal Reserve should be cautious about cutting rates, given the resilience of the economy, but political pressure could lead to more aggressive rate cuts than warranted [7][16]. - Fitch Ratings emphasized the importance of the Fed's independence as a key factor supporting the U.S. sovereign rating of AA+ [8][16]. Currency Movements - The Japanese yen fell to a one-year low of 158.285 per dollar, influenced by speculation regarding a potential snap election in Japan [9][10][16]. - Japan's Finance Minister expressed concerns over the yen's "one-sided depreciation," which may lead to further fiscal and monetary policy loosening [11][16]. - The Australian dollar remained flat at $0.6710, while the New Zealand dollar saw a slight increase to $0.5775, with varying economic sentiments reported in both countries [12][13][16].