USD rose slightly against most of its major counterparts in the European session on Tuesday, rebounding after Monday’s sharp decline, which was driven by deepening concerns about a slowdown in the U.S. economy and the erosion of the Federal Reserve’s independence.
Some experts, however, note that Monday’s selloff in the U.S. currency may have been overstated due to thin holiday trading.
The U.S. Dollar Index (DXY), which measures the U.S. currency's value relative to a basket of foreign currencies, increased 0.14% from its previous close to 98.41.
U.S. President Donald Trump’s renewed calls for the Fed to cut interest rates immediately have raised alarm over the central bank's independence - a pillar of the U.S. dollar’s credibility as a global reserve currency. Speculation is also growing that the White House aims to pin blame for a potential economic slowdown on Fed chair Jerome Powell. This underscores the Trump administration’s recessionary concerns as well.
While an emergency rate reduction seems unlikely, markets are wary of any signs that Powell might yield to political pressure. The Fed chief’s dismissal or resignation would likely hit USD hard.
At the moment, the most likely scenario is that the Fed will hold its rates steady until the U.S. economic data fully reflect tariff impacts, though Trump’s rhetoric is expected to intensify, particularly with soft activity data looming.