JPMorgan on Wednesday warned the hit from tariffs would slow U.S. economic growth and lift inflation, resulting in a 40% chance of a recession.
The U.S. dollar fell to a 3-1/2-year low against the euro on Thursday, weighed down by growing concerns over the Federal Reserve’s independence and the direction of U.S. monetary policy.
According to The Wall Street Journal, former President Donald Trump has considered announcing a replacement for Federal Reserve Chair Jerome Powell as early as September or October — a move seen by many as politically motivated and potentially damaging to the Fed’s credibility.
“Markets would likely react negatively to an early move to replace Powell, especially if it appears driven by politics,” said Kieran Williams, head of Asia FX at InTouch Capital Markets. “Such a move would raise doubts about the Fed’s independence and could lead to major shifts in rate expectations and dollar positioning.”
The comments came a day after Trump criticized Powell, calling him “terrible” for not cutting interest rates more aggressively. At the same time, Powell was telling the Senate that monetary policy needed to remain cautious due to inflation risks linked to Trump’s tariff plans.
As a result, market bets on a rate cut at the Fed’s upcoming July meeting have climbed to 25%, up from 12% just a week earlier. By year-end, traders are now pricing in 64 basis points of cuts, compared to 46 basis points last Friday.
Global Currencies Rise Against Weakened Dollar
- The euro rose 0.2% to $1.1687, its strongest level since October 2021. Key resistance levels are seen at $1.1692 and $1.1909.
- British pound gained 0.2% to $1.3690, its highest since January 2022.
- The Swiss franc hit 0.8033 against the dollar — a level last seen in 2011 — and also set a record high against the yen at 180.55.
- The yen saw the dollar dip 0.2% to 144.89.
- The U.S. dollar index fell to 97.491, its lowest level since early 2022.
Tariff Pressures Add to Economic Fears
Trump’s ongoing trade policies have also drawn renewed scrutiny, especially ahead of the July 9 deadline he set for reaching new trade deals.
JPMorgan issued a stark warning on Wednesday, stating that rising tariffs could slow U.S. economic growth and push inflation higher, raising the likelihood of a recession to 40%.
“With risks of further negative shocks on the rise, we expect U.S. tariff rates to increase,” JPMorgan analysts wrote. “We’ve entered the end of America’s ‘exceptionalism’ phase in global markets.”
This fading sense of “U.S. exceptionalism” has been a key factor behind the dollar’s decline. Investors are increasingly questioning the greenback’s dominance as the world’s primary reserve currency and go-to safe haven.
Meanwhile, the euro has emerged as a major beneficiary. Investor optimism is rising over large-scale European investments in defense and infrastructure, which are expected to support stronger growth across the continent.
