Trump Escalates Fed Feud as Markets Brace for Powell Replacement

Former President Donald Trump has intensified his public feud with Fed Chair Jerome Powell this week, calling him “terrible” and “very dumb,” while signaling that he has narrowed his list of potential replacements to just “three or four” candidates. With Powell’s term expiring in May 2026, the possibility of an early announcement—potentially before the November election—is already rippling through currency, commodity, and equity markets.

The shift has added a new dimension of political uncertainty to an already fragile macro environment. Traders are reassessing interest rate trajectories, safe-haven demand, and the credibility of US monetary policy as a change at the top of the Federal Reserve starts to feel increasingly imminent.

Trump’s Shortlist Sharpens the Narrative

According to recent remarks, Trump’s shortlist includes:

• Kevin Warsh – a former Fed governor with Wall Street backing and a track record of hawkish leanings.

• Kevin Hassett – former White House economic adviser with a focus on growth and looser monetary conditions.

• Scott Bessent – current Treasury Secretary and hedge fund veteran with limited policy experience but strong market credentials.

Others reportedly under consideration include Christopher Waller, a current Fed governor, and David Malpass, former World Bank chief. The early signaling has been interpreted as a deliberate strategy to influence the current policy narrative—effectively creating a “shadow chair” effect that is already impacting markets.

Dollar Hit by Perceived Politicization of the Fed

The US dollar fell sharply on the back of the news. The US Dollar Index (DXY) dropped below 97.50—its lowest since mid-2021—as traders priced in higher political interference risk. EUR/USD climbed toward 1.18, while GBP/USD broke through 1.37, both touching fresh multi-month highs.

USD/JPY, a key interest-rate sensitive pair, dropped below 143.00 as safe-haven flows into the yen intensified. With bond markets increasingly leaning toward a more accommodative Fed outlook, the dollar’s rate advantage continues to erode.

The reaction was swift across other major currency pairs as well, including AUD/USD and USD/CHF. Traders are now building in additional risk premiums around Fed credibility, particularly as headline risk increases ahead of the election cycle.

Gold Surges, Tech Stocks Rally on Shift in Rate Expectations

Gold extended its breakout above $2,400 per ounce, benefiting from falling real yields and a renewed focus on central bank independence. The metal remains in high demand as political and monetary instability reinforce its appeal as a hedge.

Silver also advanced, trading above $31.50 and tracking gold’s momentum closely.

On the equity side, rate-sensitive indices rallied sharply. The US100 index outperformed, led by gains in Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), and Amazon (NASDAQ: AMZN). These large-cap tech names are particularly sensitive to shifts in the interest rate environment and stand to benefit from a more dovish policy tilt.

US500 futures followed suit, rising on strength in tech, consumer discretionary, and growth stocks broadly.

Bonds and Crypto Signal Market Repositioning

Yields on US 2-year Treasuries fell below 4.20%, while the 10-year yield flattened in response to expectations of an earlier rate cut path. Fed funds futures now reflect over a 60% chance of a rate cut in September, up sharply from just weeks ago.

Crypto markets reacted as well, with Bitcoin (BTC) climbing back above $65,000 and Ethereum (ETH) regaining the $3,500 level. The narrative that digital assets serve as a hedge against fiat instability appears to be gaining renewed traction amid policy uncertainty.

Markets Adjust to the ‘Shadow Chair’ Era

While Powell remains in charge for now, the early float of a successor has already begun to shape expectations. Traders are watching every signal from Washington with greater intensity, knowing that any confirmation of a new chair—or even a leak—could have immediate implications across asset classes.

With monetary credibility now part of the political debate, traders are bracing for further volatility in dollar pairs, precious metals, and equity indices that are closely tied to the interest rate outlook.

Tips for Traders

• DXY may fall toward 96.50 as political uncertainty undermines Fed independence.

• EUR/USD could retest 1.1850 if rate cut expectations solidify.

• Gold looks poised to challenge $2,450 if real yields continue to fall.

• US100 may extend gains if tech valuations benefit from dovish sentiment.

• BTC/USD could see momentum toward $68,000 amid heightened policy instability.

• USD/JPY may slide toward 142.00 if safe-haven demand persists and rate expectations fall.