Dollar dips, gold at record high as US prosecutors target Fed's Powell

Summary:

The dollar and U.S. stock futures fell as prosecutors targeted Fed Chair Powell, stoking fears over central bank independence, while gold hit record highs amid political turmoil and rising geopolitical tensions.

The dollar and Wall Street futures dropped and gold jumped on Monday as Federal Reserve Chair Jerome Powell said the Trump administration had threatened him with a criminal indictment over the refurbishment of the central bank's headquarters.

This escalated worries about the Fed's independence from political influence to a new level and added to a frenetic start to 2026, which has already seen the U.S. capture Venezuela's Nicolas Maduro and ramp up talk of taking control of Greenland.

S&P 500 futures fell more than 0.5%, while safe-haven gold - which investors buy as hedge against both turmoil and inflation - hit another record high as money markets priced in a slightly higher chance of short-term U.S. interest rate cuts.

Europe opened with a modest 0.2% dip from record highs too . The Swiss franc - another classic safe-haven - strengthened 0.6% to 0.796 per dollar and the euro was 0.4% firmer at $1.168. /FRX

"The latest development marks a significant escalation in the fight between President Trump and Fed Chair Powell," MUFG's Lee Hardman said, adding that "the repeated attacks on the Fed’s independence" continued to pose downside risks for the dollar.

Fed funds futures have added in about three basis points more in cuts this year, which is small but points to the risk that the Fed gets pushed into being more aggressive.

Gold struck a record high of more than $4,600 an ounce, also buoyed by rising geopolitical tensions around Iran, although oil prices saw little reaction.

Trump said on Sunday he was weighing a range of strong responses, including military options, to a violent crackdown on Iranian protests which pose one of the biggest challenges to country's clerical rule since the 1979 Islamic Revolution.

Iran's Foreign Minister Abbas Araqchi said on Monday via English translation that the situation was "under total control".

Brent crude futures lost 9 cents to sit at just over $63 a barrel in early London trading, while U.S. West Texas Intermediate crude was at $59.02 a barrel, down 10 cents.

Both benchmarks rose more than 3% last week in their biggest such increase since October, as Iran's clerical establishment stepped up its crackdown on the demonstrations.

While a premium has formed in oil prices in recent days, the market is still underestimating the risk given a wider conflict could affect the Strait of Hormuz, Saul Kavonic, head of energy research at MST Marquee said.

"The market is saying, 'Show me the disruption to supply', before materially responding," he added.

TRUMP VS POWELL

The second full week of the year will include U.S. inflation data, trade figures from China and a slew of U.S. earnings beginning with JPMorgan Chase (JPM.N) and BNY (BK.N) on Tuesday, but for traders that was all for another day.

Fed chief Powell had responded to the Trump administration's threat of a criminal indictment by calling it a "pretext" aimed at pressuring the central bank to cut interest rates.

"This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure," Powell, whose term is due to end in May, said in a statement.

Economists said the developments amount to a dramatic escalation in the fight between Powell and Trump, which dates back to the banker's first years as chair in 2018.

"Trump is pulling at the loose threads of central bank independence," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank based in Sydney.

"Investors won't be happy about it, but it shows actually Trump has no other levers to pull. The cash rate will stay what the majority of the FOMC wants them to be."

The dollar had the sharpest reaction, falling even against typically risk-sensitive currencies like the Australian and New Zealand dollars. The dollar index (.DXY) was 0.4% lower in Europe and on track for its biggest one-day drop since mid-December.

The greenback had a miserable 2025, dropping more than 9% against major peers due to shrinking interest rate differentials as the Fed cut rates and as concerns about U.S. fiscal deficits and political uncertainty swirled.

"This open warfare between the Fed and the U.S. administration ... it's clearly not a good look for the U.S. dollar," said National Australia Bank's head of currency strategy, Ray Attrill.

Source: Reuters

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