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The British pound briefly surged to its highest level against the U.S. dollar in nearly four years following market apprehension over reports that U.S. President Donald Trump may accelerate the appointment of a new Federal Reserve chair.
Sterling surpassed $1.37, marking its strongest position since October 2021.
The dollar weakened after The Wall Street Journal reported that President Trump had considered naming Jerome Powell’s replacement as head of the Federal Reserve as early as September or October.
The U.S. Federal Reserve operates independently of the government, and Mr. Powell chairs a committee responsible for setting interest rates, which have remained unchanged this year, prompting repeated criticism from President Trump.
On Wednesday, President Trump described Mr. Powell as “terrible” and indicated he was considering “three or four people” as potential replacements. Mr. Powell’s term is scheduled to conclude in May 2026.
Concerns are mounting that the U.S. president could appoint an individual more amenable to his policy preferences.
Earlier this week, Mr. Powell informed U.S. lawmakers that the Fed would monitor the American economy’s response should President Trump’s proposed retaliatory tariffs against various countries take effect next month, following a pause until July 9.
The Fed is concerned that these levies, which are borne by businesses importing goods, could contribute to inflationary pressures.
The U.S. economy contracted during the first three months of the year, marking the first decline in three years, as government spending decreased and imports increased amid firms’ efforts to import goods before the tariffs were implemented.
JP Morgan, the investment bank, has revised down the probability of a U.S. recession this year, but at 40%, the likelihood of an economic slowdown remains comparatively elevated.
Kaspar Hense, a senior portfolio manager at RBC BlueBay Asset Management, stated that traders were wagering on a dollar decline “in this environment, where there is an erosion of institutions.”
Kit Juckes, chief FX strategist at Societe Generale, commented: “I think the market is pricing in President Trump appointing someone who at least at first sight appears more sympathetic to his cause.”
Academics have suggested that confidence in the Fed’s independence is paramount to maintaining financial markets’ belief that inflation will be effectively managed.
A decline in this confidence could lead to increased borrowing costs for all if investors demand higher interest rates for holding debt.
Speculation suggests that Kevin Warsh, a former governor at the Fed, may be considered for the position.
Earlier this month, President Trump responded to a question about whether Warsh could become the Fed’s chair by stating: “He’s very highly thought of.”
U.S. Treasury Secretary Scott Bessent could also be a candidate, according to reports.
He recently told lawmakers in the House of Representatives that he currently has “the best job” in Washington and is “happy to do what President Trump wants me to do.”
Mr. Powell was himself a Trump appointee. During President Trump’s first term in the White House, Mr. Powell succeeded then-Fed Chair Janet Yellen.
President Trump had criticized Ms. Yellen for maintaining excessively low interest rates, stating: “I think she should be ashamed of herself.”
Ms. Yellen subsequently became the U.S. Treasury Secretary under President Joe Biden and stated that she did not believe that President Trump had a comprehensive understanding of macroeconomic policy.
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