Dollar Extends Biggest Slump in Five Decades as Trump Heaps Pressure on Fed’s Powell

The U.S. dollar suffered its biggest decline for the first half of any year since 1973. (AFP via Getty Images)

The U.S. dollar extended its longest slump in five decades Tuesday as President Donald Trump stepped up his pressure campaign on Federal Reserve Chairman Jerome Powell to lower interest rates and Senate lawmakers voted on a Republican tax-and-spending bill that will add trillions to the national deficit.

The dollar’s overnight decline, which put the greenback at its lowest level in three years, followed a coordinated move by the White House to criticize the Fed chairman.

White House Press Secretary Karoline Leavitt unveiled a note written by the president atop a page of global central bank interest rates last night, with an arrow suggesting the U.S. borrowing costs should be somewhere between 0.5% and 1.75%.

The current Fed Funds rate now sits between 4.5% and 4.75%, and while markets are betting on a quarter -point reduction in September Powell himself has said that sticky inflation and a robust jobs market has left he and his colleagues “in no hurry” to lower rates.

Consistent pressure from Trump, however, as well as reports that he is prepared to name a so-called shadow Fed chairman who would act as a monitor to central bank policy before Powell’s departure next spring, has raised the issue of the Fed’s independence but also added extra pressure to the U.S. dollar over the past month.

“Looking ahead, it is tough to see what can derail the dollar bears here besides some dramatic spike in volatility that drives position squaring,” said John Hardy, global head of macro strategy at Saxo Bank.

“Friday’s hot core PCE inflation numbers did little, as we know to discount U.S. inflation data amid the await for a dovish Trump nominee for Fed chair seemingly any day now,” he added.

Powell may opt to address this issue during a question-and-answer session later Tuesday in Portugal, where he will attend an annual central banking event hosted by the European Central Bank.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was 0.4% lower on the session at 96.47. The index hit 96.38 in overnight trading, the lowest since February 2021 and a move that extends the index’s 2025 slide to just over 11%, the dollar’s worst start to a year since 1973.

“The dollar weakness may be the most concerning development this year,” said Louis Navellier of Navellier Calculated Investing.

“A weak dollar is good for U.S. manufacturing exports and translating foreign profits and sales for U.S. companies, but does act to raise prices on imports,” he said. “On top of the proposed tariffs, a weak U.S. dollar isn’t good news for inflation, though it hasn’t shown up yet in the numbers.”

Chris Turner, who heads ING’s markets and regional research team, thinks the dollar’s recent movements suggest currency markets will bear the brunt of any resumption in tariffs if President Trump’s “Liberation Day” levies resume on July 9.

“On that subject, reports suggest that the EU is prepared to accept 10% tariffs on most of its exports to the U.S., while it looks like Washington is currently trying to turn the screw on Japan as it seeks to open up the market for U.S. rice exports,” he said. “That could explain why USD/JPY is leading the dollar lower overnight.”

Heading into the holiday-shortened week, traders are also looking at U.S. nonfarms payroll data Thursday and the Institute for Supply Management’s reading of June business activity to guide them on potential interest rate moves.

Softening jobs growth, or a contraction in the ISM’s benchmark reading, could boost bets on a rate cut this month, but certainly cement the case for a series of reductions beginning in September.

However, the Senate’s “vote-a-rama” tied to passing the president’s One Big Beautiful Bill Act, which will add $3.3 trillion to the U.S. deficit over the next 10 years “isn’t seen as a big market driver this week,” according to ING’s Turner, as Treasury bond yields remain subdued.

“Perhaps it will have to be more news about poor demand at auctions, higher inflation or fears that the president will impose a dovish replacement for Fed Chair Powell that is required to place Treasuries back at center stage for financial markets,” he added.

Write to Martin Baccardax at martin.baccardax@barrons.com