US Dollar on Edge: Fed Minutes and Trump Attacks Rattling Central Bank Independence

Investors are bracing for a volatile week as the Federal Reserve prepares to release the minutes from its December policy meeting. The release comes against a backdrop of escalating political pressure, with President Trump explicitly threatening the tenure of Fed Chair Jerome Powell. This clash between monetary policy mechanics and executive pressure is creating a complex risk environment for the USD.

Fed Minutes: The “Pause” Narrative

The Federal Reserve recently opted to pause its easing cycle after three consecutive rate cuts, signaling a “wait-and-see” approach. Markets are now pricing in a policy hibernation that could last until mid-next year.

• The Core Conflict: The minutes are expected to reveal a split committee. One camp remains deeply concerned about sticky inflation, necessitating the current pause. The other is increasingly worried about labor market deterioration and argues for continued easing.
• Market Implication: If the minutes reveal a strong consensus for a “long pause” (potentially through June), Treasury Yields may find support, keeping a floor under the Dollar Index (DXY) despite broader headwinds.

Political Headwinds: The Powell Factor

Adding a layer of systemic risk, President Trump has reportedly discussed suing Fed Chair Powell for “incompetence” or seeking his removal.

For Forex markets, threats to Central Bank independence are typically bearish for the currency in the long term due to the erosion of institutional credibility. However, in the short term, the uncertainty adds a risk premium. Markets are now watching to see if Trump attempts to install a dovish successor in 2026 who favors aggressive rate cuts—a scenario that could eventually weigh heavily on the Greenback.

Watch List

• EUR/USD: Sensitive to any “dovish” surprises in the Fed minutes.
• DXY: Assessing the durability of the “high-for-longer” pause narrative against political noise.