US Dollar collapses to fresh three-year lows as Fed independence questioned
- The US Dollar Index (DXY) trades near the 98.50 area after a sharp decline during Monday’s session.
- Concerns rise after Trump criticizes Powell, sparking fear over Fed's independence and further damaging USD sentiment.
- Technical indicators show sustained bearish momentum with resistance seen around 98.65 and 100.38.
The US Dollar Index (DXY) trades deep in the red on Monday, sliding toward the 98.50 region and marking a new three-year low. The sharp drop follows escalating market concerns over the Federal Reserve’s (Fed) institutional integrity after US President Donald Trump again publicly criticized Fed Chair Jerome Powell and confirmed he is exploring ways to remove him. Trump accused Powell of manipulating interest rates for political purposes in 2024 and described him as “too late” in reacting to economic conditions.
Amid rising global uncertainty and deteriorating confidence in US monetary leadership, Gold surged to a new all-time high near $3,425 per ounce, benefiting from safe-haven demand and a collapsing Greenback. The broader sentiment remains risk-averse with traders reassessing the Dollar’s long-term reserve status amid unpredictable trade and fiscal policies.
Daily digest market movers: Threats to Fed rattle markets
- Gold’s explosive rally above $3,400 underscores the rush to safe-haven assets as political interference fears escalate in the US.
- President Trump’s repeated attacks on Fed Chairman Powell — alongside reports that his administration is examining legal avenues to remove him — have rattled investor confidence.
- The DXY's drop to the 98.00 zone reflects the market’s unease with a potentially politicized central bank. Comments from White House advisor Kevin Hassett and Trump’s Truth Social posts have only deepened the perception of a hostile stance toward monetary independence.
- Analysts at Scotiabank warn that undermining the Fed could weaken inflation-fighting credibility, which might lift inflation expectations and pressure the USD even further.
Technical analysis
The technical backdrop for the DXY remains heavily bearish. The pair trades around 98.50, near the bottom of the daily range (97.92–99.21), showing a strong negative bias. The Relative Strength Index (RSI) has dropped to 24.22, entering deeply oversold territory, while the Moving Average Convergence Divergence (MACD) continues to print a sell signal.
Bearish sentiment is confirmed by the positioning of key moving averages: the 20-day Simple Moving Average (SMA) at 102.26, the 100-day at 106.04, and the 200-day at 104.63 — all trending lower. The 10-day EMA at 100.38 and SMA at 100.69 further reinforce resistance above current levels.
Key resistance levels are noted at 98.65, followed by 100.38 and 100.69. While some short-term oscillators like the Ultimate Oscillator (37.76) and Awesome Oscillator (−3.54) appear neutral, the dominant structure remains clearly negative.
Unless political clarity is restored or risk sentiment shifts, the DXY appears poised for further downside.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.