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The US Dollar faced widespread selling pressure on Monday as reports of a criminal investigation involving Federal Reserve Chair Jerome Powell sent shockwaves through currency markets, triggering a flight to safe-haven assets and raising fresh questions about the central bank’s independence.
Fed Chair Under Legal Scrutiny
The Justice Department has issued grand jury subpoenas to the Federal Reserve regarding Powell’s June congressional testimony about renovations at the Fed’s headquarters, according to market sources. This development has created immediate uncertainty about the central bank’s leadership and institutional integrity at a critical juncture for monetary policy. The legal scrutiny comes as markets already await the announcement of the next Federal Reserve Chair, though analysts suggest the Federal Open Market Committee is expected to provide balance against any potentially dovish appointee.
Broad Dollar Weakness Emerges
The Greenback’s decline was evident across major currency pairs as concerns about Fed independence weighed on investor sentiment. The USD/JPY pair found itself consolidating near January 2025 highs with the 158.00 level acting as a resistance cap, as the Japanese Yen gained modest ground against its American counterpart. Meanwhile, the Pound Sterling demonstrated particularly strong recovery, surging from weak opening levels around 1.3390 to approximately 1.3465 during European trading hours.
Even traditionally correlated pairs showed the Dollar’s vulnerability, with USD/CAD managing to hold above 1.3860 despite the generalized US Dollar weakness, highlighting the pervasive nature of the selling pressure across forex markets.
Safe Haven Assets Surge
Gold emerged as the primary beneficiary of the risk-aversion sentiment, jumping to fresh record highs near the $4,600 psychological mark. The precious metal surged nearly 1.70% on the day, trading around $4,583 as investors sought refuge from the uncertainty surrounding Fed leadership. This dramatic move underscores the market’s sensitivity to any perceived threats to central bank independence and the potential implications for monetary policy credibility.
The gold rally reflects broader concerns about institutional stability and geopolitical risks, with the Fed investigation adding another layer of uncertainty to an already complex global economic landscape.
Market Implications and Outlook
The unfolding situation presents significant challenges for Dollar strength in the near term, as markets grapple with questions about Fed leadership continuity and institutional independence. The timing is particularly sensitive given ongoing discussions about the next Fed Chair appointment and the central bank’s crucial role in managing monetary policy transitions.
Currency traders are likely to remain cautious until more clarity emerges about the investigation’s scope and potential impact on Powell’s tenure. The broad-based Dollar weakness suggests this story has legs beyond typical political noise, with fundamental questions about central bank governance at stake. Safe-haven flows into gold and selective currency strength in pairs like GBP/USD indicate that market participants are positioning for continued uncertainty around Fed leadership and its implications for US monetary policy credibility.
