US Dollar Index (DXY) hits fresh three-year lows near 97.00 on Trump’s attacks on Powell

• Trump's attacks on Powell have undermined confidence in the Fed's independence and are crushing the USD.
• The Dollar is trading at three-year lows near 97.00.
• A report from JP Morgan warns about the potential stagflationary effects of Trump's tariffs.

The US Dollar is trading lower for the sixth consecutive day on Thursday, as Trump’s attacks on Fed Chairman Jerome Powell have undermined confidence in the US central bank and revived the “Sell America” trade. The USD Index (DXY), which measures the value of the Dollar against the most traded currencies, is nearly 2% lower this week, at the lower range of the 97.00s for the first time since March 2022.

President Trump reacted with anger to Powell´s testimony to Congress, calling him names and suggesting that he might announce the name of his replacement as soon as September or October. This is an unusual move to increase pressure for further rate cuts, which puts the central bank’s independence into question.

These comments came after Powell reaffirmed the Fed's hawkish stance in his testimony to Congress, refusing to signal any upcoming rate cut until the impact of tariffs on inflation is clarified.

Apart from that, the ceasefire in the Middle East has shifted investors' focus back to macroeconomics. In this context, Trump’s trade policy remains highly unclear, amid a lack of progress on trade deals with US's key commercial partners, and this is weighing on the US Dollar.

A report from JP Morgan warned that Trump’s tariffs might trigger a stagflationary recession later this year. The bank prices a 40% chance that the economy contracts in the second half of the year.