Federal Reserve Chairwoman summoned, impacting the dollar; euro rebounds, yen drops to 158 yen

Source: BlockMedia Original Title: [Forex] Dollar Falls Following Powell Subpoena… Euro Rebounds, Yen in the 158 Yen Range Original Link:

USD Weakens, Multiple Currencies Rebound

After news broke that the U.S. Department of Justice issued a subpoena to Federal Reserve Chair Jerome Powell, the dollar showed weakness against major currencies. Concerns over the political independence of the Federal Reserve have become more prominent, causing cracks in trust in dollar assets, with funds flowing into alternative currencies such as the euro and Swiss franc.

On the 12th local time, the U.S. dollar index in major forex markets fell 0.37% from the previous trading day to 98.87. The dollar’s rebound momentum driven by strong U.S. employment data at the start of the year was interrupted by political risks surrounding the Federal Reserve.

Powell’s Subpoena Becomes a Key Variable in Dollar Confidence

The recent dollar depreciation is driven by political pressure on the Federal Reserve Chair. Powell stated that the Department of Justice’s actions regarding his congressional statements are seen by the White House as an excuse to intensify rate cut pressures. Powell’s term ends in May, and President Donald Trump is considering a more lenient successor to the Federal Reserve Chair, which has heightened market alertness.

Mark Chandler, Chief Global Forex Strategist at a major firm, said: “This essentially ends the dollar’s rebound momentum from earlier this year. Compared to geopolitical issues, concerns over the Fed’s independence have a more direct impact on the forex market.”

Dollar’s Downtrend Supported by Employment and Rate Freeze Expectations

However, some believe that the dollar’s continuous decline may be limited. Recent U.S. employment indicators remain strong, and market expectations are that the Federal Reserve will freeze the benchmark interest rate in the short term, supporting the dollar’s downward trend. The federal funds rate futures market has priced in the next rate cut after June.

Euro and Swiss Franc Directly Benefit from Dollar Depreciation

The euro benefits directly from the dollar’s decline, performing strongly. EUR/USD rose 0.29% to 1.1671 USD. Market analysts believe that if political uncertainty surrounding U.S. monetary policy increases, the euro, with its relatively stable institutional framework, may attract capital inflows. The relatively clear monetary policy path of the European Central Bank also supports the euro’s strength.

The Swiss franc also performs strongly amid risk aversion. USD/CHF fell 0.54% to 0.797, with the franc showing the largest gain among major currencies. This is interpreted as a result of concerns over the Federal Reserve’s compromised independence fueling a global preference for safe-haven assets.

Yen Exception: Internal Japanese Factors Lead to Continued Depreciation

In contrast, the yen continues to depreciate against the dollar. USD/JPY rose 0.15% to 158.12 yen, even reaching a new high of 158.19 yen intraday within a year. Despite U.S. political risks, the yen’s inability to strengthen is mainly due to domestic factors in Japan.

Last week, Japan’s real wages in November saw a significant year-over-year decline, marking the worst performance since early last year. Since the Bank of Japan considers wage increases a key condition for monetary policy normalization, the market generally expects that the timing of a rate hike may be further delayed. As a result, the yen remains under downward pressure.

Political variables also exert pressure on the yen. The Japanese government, led by Prime Minister Fumio Kishida’s cabinet, may continue to maintain an expansionary fiscal and accommodative monetary policy stance, which is seen as a factor contributing to yen depreciation. The market generally believes that until the Bank of Japan signals a policy shift, the yen’s depreciation trend will be difficult to reverse.

Future Focus: Central Bank and Political Variables

Experts believe that the future trajectory of the dollar and yen will largely depend on tensions between political and central bank forces. Goldman Sachs analysts suggest, “The U.S. may cut its benchmark interest rate by 50 basis points this year, while the Bank of Japan is considering further rate hikes. The USD/JPY exchange rate may show a gradual stabilization downward trend.”

Regarding the EUR/USD rate, Goldman Sachs expects that “whether the break above 1.10-1.11 USD depends on Europe’s economic recovery and ECB policy signals. If dollar depreciation continues, the euro may maintain a moderate strength.”