President Donald Trump’s potential dismissal of Fed Chairman Jerome Powell is a major and inexpensive risk that could trigger a sell-off in the U.S. dollar and Treasury bonds, which is a German Bank AG strategist said.
Trump said this week Powell should “Resign immediately”,” If the allegations from government officials say the central bank misleading the federal government’s refurbishment of the Federal Reserve’s headquarters is correct. The claim has exacerbated Trump’s criticism of the Fed’s chairman, who demanded lower interest rates and said he could nominate his successor before Powell’s term ended.
Powell resisted ease of monetary policy pressure and said he would not resign given the Fed’s independence. Powell acknowledged the cost overruns associated with the renovation work, but Powell disputed the report on the issue and called it “flat misleading.”
George Saravelos, head of global FX strategy at Deutsche, said in a report to clients that the market is “a possibility of a low-priced Powell.” He pointed out PolyMarket, a distribution betting platform Less than 20% chance It happened and pointed out that the dollar has been widely stable lately.
If Trump forces Powell to kick out, the subsequent 24 hours could drop at least 3% to 4% in the trade-weighted dollar, and a sell-off of 30 to 40 basis points in fixed income. Greenbacks and bonds will carry a “continuous” risk premium, he said, adding that investors may also be anxious about the potential politicization of the Fed’s swap lines with other central banks.
“Investors may interpret this incident as a direct insult to parenting independence, putting central banks under extreme institutions,” Savelos said. “As the Fed sits at the top of the global dollar monetary system, it also shows that the consequences will make the consequences far beyond the U.S. borders.”
How the market continues to react will depend on whether other Fed officials revolve around central bank independence, Trump’s nomination for Powell’s successor and open integration of the economy, Saravelos said.
“Exceed He said we are worried that the U.S. economy is currently finding its external capital position very fragile, which increases the risk of a larger and more destructive price transfer than we outlined. ”
In another report, ING Groep NV strategists, including Padhraic Garvey, said Powell’s early exit was “unlikely”, but inflation was faster due to lower investors’ prices and reduced independence from feeding.
This will also create a “toxic mixture” for the dollar, and the euro, yen and Swiss franc will benefit the most, they said.
