Dollar reels on criminal probe into Powell, gold hits record high
The U.S. dollar fell by the most in three weeks on Monday as U.S. prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell, adding to tensions with the Trump administration.
The dollar index, which measures the greenback's strength against a basket of six currencies, was last 0.2% lower at 99.011, snapping a five-day winning streak. Gold jumped to a record $4,600.33 per ounce after the New York Times reported the investigation and Powell issued a video statement defending the central bank's independence.
"Powell has had enough of the carping from the sidelines and is clearly going on the offensive," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
"This open warfare between the Fed and the U.S. administration -- and to the extent that you take Powell's comments at face value -- it's clearly not a good look for the U.S. dollar."
The dollar had advanced in early Asian trade to a one-month high after Friday's jobs report bolstered expectations the Federal Reserve will hold interest rates later this month, while reports of hundreds of deaths during protests in Iran heightened geopolitical tensions and stoked demand for safe havens.
Geopolitical tensions in Iran "should be positive for the U.S. dollar but we haven't seen any upside there yet," said Kyle Rodda, senior market analyst at Capital.com in Melbourne. "The question from here is whether the momentum behind the protest movement continues, and whether the regime cracks down even harder, opening the door to some U.S. involvement."
Financial markets are preparing for a busy data calendar this week, with Tuesday's release of the U.S. consumer price index for December providing one of the last key economic releases before the Federal Reserve's next monetary policy meeting at the end of January. "U.S. inflation remains above the Fed's target of 2.0%, and this may limit the FOMC's ability to cut rates further barring a material loss of momentum in the U.S. economy," analysts from Standard Chartered wrote on Sunday, saying further rate cuts are unlikely. "The labour market is not deteriorating further, and this should – at the margin – keep some upward pressure on both U.S. Treasury yields and the U.S. dollar." Major banks kick off the fourth-quarter earnings season in the coming week, with strong profit growth this year a crucial source of optimism for stock investors. A ruling from the Supreme Court on the legality of Trump's emergency tariffs could also be released as soon as Wednesday.
Against the yen, the U.S. dollar was last 0.1% stronger at 158.135 yen, nearing its strongest in a year after the head of Japanese Prime Minister Sanae Takaichi's coalition partner said on Sunday she may hold a snap election on February 8 or 15. On Friday, media had reported she was considering a vote that month citing government sources.
The euro was last 0.2% stronger at $1.1656, rebounding from a one-month low.
Against the Chinese yuan trading offshore in Hong Kong, the U.S. dollar shed 0.1% of its value to 6.9706 yuan, its softest in a week and approaching its weakest since May 2023.
The appreciation of the Chinese yuan against the U.S. dollar does not necessarily indicate a revaluation of the currency or Chinese assets, as it lacks support from underlying fundamentals, a former foreign exchange regulator said in a blog late on Sunday. The British pound nudged up 0.1% to $1.3422, rebounding from a one-month low, as the Financial Times reported that the EU has requested the UK pay compensation to the bloc if a future British government reneges on a post-Brexit reset deal, citing a draft text. The Australian dollar strengthened 0.1% to $0.6696, while the New Zealand dollar was 0.2% firmer at $0.5743.
Bitcoin rose 1.5% to $91,975.87, while ether was last up 1.2% at $3,154.93
