R isk-sensitive currencies from Scandinavia, New Zealand, and Australia have risen roughly 3 per cent against the US dollar since the US and Iran agreed to a truce on April 7. The Bloomberg Dollar Spot Index has fallen about 1.4 per cent in the same period, as investors rotate out of the world's primary reserve currency and into riskier assets.
Related Brief 6h ago
monetary policy The Legal Barrier Between Trump's Rate Demands and the Fed Chair's Desk
Jerome Powell will remain as acting chair of the Federal Reserve if Kevin Warsh is not confirmed by the Senate by May 15. Powell's term as chair expires that day, but he intends to stay until a successor is confirmed. President Donald Trump has pledged to fire Powell if he does not resign. The transition is currently stalled by Senator Thom Tillis, a Republican, who has vowed to block Warsh's advancement until a Justice Department probe into Powell concludes. Because of Tillis's opposition, Warsh needs at least one Democratic vote to move forward. The investigation, led by U.S. Attorney Jeanine Pirro, examines whether Powell misled Congress about a $2.5 billion renovation of the Fed's headquarters. Powell has dismissed the probe as a pretext for political pressure to cut interest rates, which currently remain above 4%. While Trump has called Powell a "knucklehead" and claimed he is "doing a lousy job," the president's ability to remove him is subject to a pending legal determination. Powell is a confirmed governor through 2027. The Supreme Court is currently weighing the scope of presidential power over the Fed in a case involving Governor Lisa Cook, whom Trump attempted to remove in August over allegations of mortgage fraud. A ruling is expected by early summer. If the Court limits the president's ability to remove Fed governors without cause, Trump cannot legally fire Powell from his governorship.
This retreat from the dollar's war-driven rally is returning investors to the headwinds that caused the dollar to fall 8 per cent in 2025, its worst performance since 2017. The rally had surged in March as the war roiled global markets, but the currency has surrendered most of that advance and returned to levels seen before the fighting erupted at the end of February.
Related Brief 19h ago
monetary policy US-Iran Ceasefire Optimism Erases Federal Reserve Rate Hike Expectations
Traders have priced out all Federal Reserve interest rate hikes for the remainder of the year, a reversal from the two hikes projected in March. The US Dollar Index trades near 97.85, its lowest level in over six weeks, while the USD/CHF pair trades near its monthly low of 0.7790. This shift in market pricing is driven by optimism that the United States and Iran will reach a permanent ceasefire. President Donald Trump stated that negotiations could resume in Pakistan within two days and that the war with Iran is close to over. Vice President JD Vance confirmed that talks are taking place via channels including Pakistan. The optimism has diminished safe-haven demand for the US Dollar and lowered inflation expectations on the expectation that oil prices will fall if a deal is reached. The US Dollar Index slipped approximately 0.1% as global risk appetite improved.
Global investors are now hedging against further declines. State Street reports that dollar hedging ratios have reached a two-year high of 63 per cent. In the options market, positioning is the least bullish in weeks.
Related Brief 1d ago
monetary policy Federal Reserve leadership transition creates path for rate cuts despite inflation
Equities and risk assets would see improved multiples through reduced discount rates if the Federal Reserve shifts toward a more dovish policy. This path depends on the confirmation of Kevin Warsh as Chairman and the subsequent departure of Jerome Powell from the Board of Governors. Warsh, the current nominee, favors rate cuts driven by the view that AI-driven productivity gains act as a medium- to long-term disinflationary force. If confirmed, Warsh would lead an FOMC where eight of twelve voting members skew neutral-to-dovish. The FOMC has never outvoted the Chair's position. Jerome Powell's term as Chairman ends May 15, 2026, but his term as a Governor extends to January 2028. A Department of Justice criminal investigation into Federal Reserve renovation projects complicates Powell's exit, and Senator Thom Tillis has made the dismissal of this probe a condition for his support of Warsh's nomination. Powell's departure from the Board would remove a potential anchor for the status quo and allow Warsh to build consensus for 2-3 rate cuts totaling 50 to 75 basis points by year-end 2026.
Beyond the prospect of Federal Reserve interest rate cuts, the currency faces pressure from political instability. President Donald Trump has threatened to fire Fed Chair Jerome Powell if he does not leave his post "in time," a move that could lead to the interim appointment of an ally while nominee Kevin Warsh awaits confirmation. Kathleen Brooks, research director at XTB, warns this could revive the "dollar debasement theme" that weighed on the currency last year.
Related Brief 1d ago
foreign exchange Yield Advantages and Inflation Expectations Floor the U.S. Dollar
The dollar index fell from a 10-month high of 100.64 to 98.07 as a tentative ceasefire in the U.S.-Iran war revived appetite for riskier currencies. This retreat follows a rush for safe havens that had pushed the currency to its peak. The dollar remains 0.5% above its pre-war level. The currency is unlikely to break through this year's low of 95.55. Surging oil prices from the war increased inflation, shifting market expectations for Federal Reserve rate cuts in 2026 from two reductions to one at most. Foreign holdings of U.S. Treasuries rose to $9.305 trillion in January. The 2-year German-U.S. bond spread sits at 1.135 percentage points. U.S. assets retain a yield advantage over European equivalents, providing a cushion that prevents the dollar from breaking meaningfully below its recent lows.
Deutsche Bank and Wells Fargo have advised selling the US currency, with Deutsche Bank forecasting the euro to eclipse US$1.20, from approximately US$1.18. JPMorgan Chase strategists noted that the dollar appears worse off on a medium-term basis due to high war spending.
Related Brief 2d ago
commodities Dollar Weakness Pushes Gold Toward $4,800 Per Ounce
Gold prices rose to $4,773 per ounce as the US dollar declined. The Bloomberg Dollar Spot Index fell 0.2%, extending a losing streak to seven consecutive sessions, the longest in two years. Because gold is priced in dollars, a weaker currency increases its attractiveness to global investors. COMEX gold futures gained 0.87%, bringing prices close to the $4,800 level.
While the double blockade of the Strait of Hormuz remains, the current rotation suggests a long-term period of weakness for the US dollar.
Related Brief 16h ago
monetary policy Powell's Governor Term Protects Interest Rate Voting Rights Despite Dismissal Threat
Jerome Powell retains voting rights on the Federal Open Market Committee to set benchmark interest rates until 2028. This remains true even if he is dismissed as chair. Donald Trump has threatened to dismiss Powell if he does not step down by the 15th of next month, the date his term as chair ends. Powell intends to serve as interim chair until a successor is confirmed by Congress, citing the Federal Reserve Act and precedent. Trump has nominated Kevin Warsh as successor. Senator Tom Tillis has stated he will oppose Warsh's confirmation until a federal prosecutor's investigation into Powell is resolved. The prosecutor is investigating Powell for alleged perjury before Congress regarding a $2.5 billion renovation of the Federal Reserve building. Powell's term as a Federal Reserve Governor extends until 2028.
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