The US Dollar Index Plunged! Did Trump Already Frighten the Dollar into Collapse Before Even Firing Powell?

On Monday, April 21, during the Asian trading session in the global markets, gold, which had been hitting record highs, and the US dollar, which had been in a continuous decline, suddenly became the two most eye-catching "scenic lines" of the market...

Market data showed that the ICE US dollar index (DXY) plummeted by about 100 points in the early morning, hitting a three-year low of 98.22. The surge in gold prices during the Asian session today can largely be attributed to the rare sell-off of the US dollar. As of the time of writing, spot gold prices have reached a new historical high of $3,385 per ounce.

Many industry insiders stated that the reason for the US dollar's sharp decline on Monday was due to US President Trump's consideration last week of replacing the Fed Chairman, which raised doubts about the independence of the US Fed and once again shook investors' confidence in the US economy. Additionally, markets in Australia, Hong Kong, China, and Europe were closed for Easter on Monday, and the relatively quiet holiday liquidity in the foreign exchange market amplified the US dollar's decline.

Among non-US currencies, the US dollar fell further against the Swiss franc to a ten-year low of 0.8069, the euro broke through the 1.15 mark against the US dollar, and the New Zealand dollar rose to 0.6000 against the US dollar for the first time in more than five months.

The US dollar also fell to a seven-month low of 140.61 against the Japanese yen. Data from the US Commodity Futures Trading Commission (CFTC) showed that as of the week ending April 15, the net long positions in the yen hit a record high.

White House economic advisor Kevin Hassett said last Friday that the president and his team are continuing to study whether they can fire Fed Chairman Powell. Just one day before Hassett made these remarks, Trump had threatened to fire Powell and called on the US Fed to cut interest rates.

Christopher Wong, a strategist at OCBC Bank, said, "Frankly, the discussion of firing Powell is incredible. And if the credibility of the US Fed is questioned, it could severely undermine confidence in the US dollar."

Currently, many industry insiders have begun to worry that if Powell is dismissed, it could significantly weaken investor confidence, as the independence of the US Fed has long been seen as a key guarantee for investing in US assets. If Powell were to step down prematurely, Trump would likely choose a successor with an "extremely dovish" monetary policy stance to align with the White House's call for interest rate cuts.

In fact, from the perspective of the foreign exchange market, Trump might also support a weaker US dollar to some extent, as the White House team may welcome a depreciation of the US dollar, which would enhance the competitiveness of US products, in line with his previous statements and the potential goals of the Mar-a-Lago Agreement.

Has Trump already scared the US dollar into a collapse before even firing Powell?

Vishnu Varathan, head of macro research at Mizuho Asia (excluding Japan), said, "Powell does not report directly to Trump, so Trump may not actually be able to fire him through formal procedures—Powell can only be removed under specific procedures, which are seen as having higher barriers... However, can the president push processes that could undermine the independence of the US Fed? Absolutely!"

"I think they don't even need to fire Powell immediately. You just need to make people feel that you can fundamentally change the perception of the US Fed's independence. Andthis will be a feast for anyone bearish on the US dollar.... From the increased uncertainty around tariff self-harm to the loss of confidence even before the news of firing Powell," Varathan pointed out.

Win Thin, global head of market strategy at Brown Brothers Harriman, wrote in a report, "We believe the US dollar's weakness will continue. The attack on the US Fed's independence is intensifying."

According to CFTC data, hedge funds' bearish sentiment on the US dollar has reached its highest level since October last year.

"Central bank independence is extremely valuable—it cannot be taken for granted, and once lost, it is difficult to regain," said Will Compernolle, macro strategist at FHN Financial in Chicago. "Trump's threats against Powell obviously do not help boost foreign investors' confidence in US assets."

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, said that Trump may try to fulfill his threat to fire Powell, and investors should not rule out this possibility—this move could exacerbate the sell-off of US Treasuries and the US dollar, a situation that usually only occurs in emerging market economies or when confidence in a country's governance is shaken.

In fact, when US Treasuries and the US dollar index fell in tandem earlier this month, there were concerns that foreign investors might be selling off US assets on a large scale.

"This kind of thing would have been unthinkable in a major developed country in the past," Jones said, referring to Trump's remarks about seeking to remove Powell. "The more Trump pressures, the worse it gets." She said that even if investors approve of any potential replacement for Powell, the damage would already have been done by then. "Bond yields would rise, and the US dollar would fall, because the US would lose any credibility."

Interestingly, in today's US dollar sell-off, there was another notable anomaly across asset classes: Bitcoin.

Previously, any sharp drop in the US dollar (and the subsequent surge in the yen) would hit carry trades hard, to some extent affecting tech stocks and cryptocurrencies, but today we finally saw a shift in the pattern. After initially being flat, a wave of buying pushed Bitcoin up by nearly $2,000, breaking through $87,000, marking the largest single-day gain since April 2, Trump's "Liberation Day"...

Some industry insiders said that the breakdown in the correlation between the two indicates that as gold prices approach absurdly high levels, some insiders also see Bitcoin as the next "safe haven" to escape the US dollar's collapse—after all, once all central banks launch a "money printing" frenzy, further depreciation of fiat currencies may only be a matter of time.