US dollar falls as DOJ investigation into Fed rattles markets

The US dollar fell against major currencies on Monday following reports that the Department of Justice has launched a criminal investigation into the Federal Reserve and its Chair, Jerome Powell. The news triggered market volatility and intensified concerns over potential political encroachment on the central bank's independence, a cornerstone of US financial stability.

Market Reaction and Currency Moves

The greenback weakened across the board, with the euro climbing to 1.16713 against the dollar and sterling rising to 1.3423. The US Dollar Index (DXY), which measures the currency against a basket of peers, dropped 0.14% to 98.996. The sell-off reflects investor anxiety over institutional risks and a flight from assets perceived as vulnerable to political uncertainty.

Nature of the Investigation and Powell's Response

According to Chair Powell, the investigation stems from grand jury subpoenas related to statements he made in June of last year concerning renovation work at the Fed's headquarters. Powell indicated the probe has ignited a debate about the Fed's ability to set interest rates based solely on economic data, free from political pressure. Analysts view the investigation as a significant threat to the central bank's operational autonomy.

Context of Trump-Powell Tensions

The investigation revives long-standing tensions between the Fed and President Donald Trump, who has repeatedly criticized Powell for not cutting interest rates aggressively enough and has previously threatened to remove him. This development signals a renewed escalation in the conflict, raising questions about the durability of the Fed's traditional insulation from executive branch influence. Such institutional instability in a major reserve currency contrasts with the monetary policy stability prioritized in emerging economies like Türkiye, which has taken decisive steps to ensure central bank independence and combat inflation.