By Ankur Banerjee
SINGAPORE (Reuters) -The U.S. dollar jumped broadly against major currencies on Wednesday as investors heaved a sigh of relief after President Donald Trump backed away from threats of firing Federal Reserve Chair Jerome Powell following his recent attacks.
The markets this week have been grappling with the notion that the Fed’s independence could be under threat after an Easter holiday weekend featuring repeated attacks by Trump on Powell for not cutting rates since the president resumed office in January.
But late on Tuesday Trump appeared to back down.
“I have no intention of firing him,” Trump told reporters in the Oval Office on Tuesday. “I would like to see him be a little more active in terms of his idea to lower interest rates.”
That left the dollar soaring on Wednesday in Asian hours, rising 0.75% against the yen to 142.68 and 0.7% against the Swiss franc to 0.8249. The euro was 0.49% lower at $1.1363.
The dollar had been trading near multi-year lows versus the euro and the Swiss franc on Tuesday, while the yen hit a seven month high as investors dumped U.S. assets, worried by trade tensions and Trump’s attacks on the Fed.
Also aiding sentiment on Wednesday were comments from Trump and U.S. Treasury Secretary Scott Bessent that suggested that there could be a de-escalation in U.S.-China trade tensions and any trade deal with China could “substantially” cut tariffs.
“Trump’s apparent U-turn must come as a relief … which has helped support the U.S. dollar on bets he (Powell) won’t be replaced with someone more dovish,” said Matt Simpson, senior market analyst at City Index.
“But trade is the bigger story here – as how tariffs play out will dictate where the U.S. economy, and therefore U.S. interest rates, are headed.”
Bessent said neither side sees the status quo as sustainable, adding that the Trump administration’s goal was not to decouple the world’s two largest economies, according to a person who heard his presentation to investors at a JP Morgan conference.
Meanwhile, Trump expressed optimism that a trade deal with China could “substantially” cut tariffs. He said a deal would lower tariffs on Chinese goods, suggesting that a final deal will not “be anywhere near” current tariff rates. But he added that “it won’t be zero”.
Chris Weston, head of research at Pepperstone, said Trump’s stance on Powell should go some way to allying fears of a major policy mistake in pursuing the removal of the Fed chair.
“Markets become ever more conditioned to the President shooting from the hip and then reversing the stance like it was never a big issue.”
In other currencies, sterling fell 0.39% to $1.3281. The Australian dollar rose 0.3% to $0.6385, while the New Zealand dollar was 0.11% higher at $0.597.
In cryptocurrencies, bitcoin rose 2.7% to $93,671.97, breaking above $90,000 for the first time since March.
(Reporting by Ankur Banerjee in Singapore. Editing by Gerry Doyle)
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