Pricing the “Trump Fires Powell” Scenario — Deutsche Bank: U.S. Treasury Divergence and a 6% Drop in the Dollar?

TradingKey - The ongoing political pressure from President Donald Trump on Federal Reserve Chair Jerome Powell — including threats of removal — has stirred significant market concern over Fed independence and monetary policy stability.

Following a Wednesday (July 16) news spike suggesting Trump had drafted a letter to fire Powell, Deutsche Bank updated its analysis of the potential market impact — forecasting greater near-term volatility in both U.S. Treasuries and the dollar.

A One-Hour Market “Stress Test”

On July 16, reports surfaced that Trump was preparing to remove Powell from his post — pushing markets into a brief but sharp reaction:

• 10-year and 30-year Treasury yields rose ~5 and ~11 basis points, driven by fears of long-term inflation and Fed politicization
• 2-year yields fell by 5 basis points, as traders priced in the possibility of a more dovish successor to Powell
• The U.S. dollar weakened sharply, with EUR/USD rising over 1% in minutes
• U.S. equities — which had been up 0.3% in early trading — turned negative, down 0.7%

In short, the episode was bullish for short-term Treasuries, and bearish for long-term bonds, the dollar, and stocks.

Quantifying the Risk — Deutsche Bank’s Updated Scenario

In a research note published on July 17, Deutsche Bank reviewed the one-hour market response — calling it a valuable “stress test” for pricing political risks tied to Fed independence.

According to data from Polymarket, a prediction market, the odds of Powell being fired this year jumped 15 percentage points during the episode — peaking at 40%.

Deutsche Bank noted that even a 15 percentage point increase in firing risk was enough to trigger that day’s market selloff. If the probability were to reach 100%, the bank estimated that the market impact could be four times greater.

Deutsche Bank’s Scenario Analysis

The bank outlined a potential full-blown “Fire Powell” scenario:

• 2-year Treasury yield could fall by 20 bps
• 10-year yield could rise by 20 bps
• 30-year yield could spike by 45 bps
• Trade-weighted U.S. dollar could fall by 6%

This is a marked escalation from the bank’s previous estimates, which had projected a 3–4% dollar decline and 30–40 bps in Treasury yield drops.

While institutions like Bank of America and JPMorgan Chase have publicly supported the Fed’s independence, most analysts still believe the actual probability of Powell being fired remains low.

Roger Altman, founder of Evercore, argued that Powell is unlikely to resign voluntarily — as doing so could trigger market panic and a constitutional crisis.