Dollar Dilemma: Monetary Policy Uncertainty and Market Reactions

The dollar hit multi-year lows against the euro and Swiss franc as the Federal Reserve's independence came under scrutiny. A Wall Street Journal report revealed that President Trump is considering replacing Federal Reserve Chair Jerome Powell, raising alarm about the potential for politically-motivated decisions to affect credibility.

Kieran Williams of InTouch Capital Markets noted that markets would react negatively to any premature replacement announcement. There are concerns that such a move could undermine the Fed's independence, affect rate expectations, and trigger a reassessment of dollar positioning.

Amid tariff-related economic uncertainties, JPMorgan warns of an elevated risk of further shocks, with a 40% chance of a recession. Despite the dollar's decline, there is anticipation of support from rebalancing flows, while the euro benefits as its attractiveness grows with new European investments.

(With inputs from agencies.)