The dollar has plunged to its weakest level in three years amid reports that Donald Trump is plotting to undermine the chair of the Federal Reserve.
The US president is considering naming his chosen successor to Jerome Powell by September or October, according to the Wall Street Journal, in a bid to create a “shadow” Fed chief.
Mr Powell’s term as Fed chair is due to end in 11 months, and a successor is usually announced three to four months in advance to allow for a smooth transition.
However, it is thought that by naming a successor earlier, Mr Trump’s choice could influence the market by unveiling plans for more aggressive rate cuts.
It comes after the US president has repeatedly chastised Mr Powell for not cutting interest rates, describing him as “terrible “in his latest attack on Wednesday.
Mr Powell indicated to Congress on Wednesday that interest rates would likely remain on hold at the next Federal Open Market Committee meeting in July as policymakers try to work out the impact of Mr Trump’s tariffs.
Official figures published on Thursday showed the US economy shrank by more than expected during the first three months of the year.
US GDP declined by 0.5pc in the first quarter as Mr Trump unleashed his tariff onslaught. The contraction was worse than the 0.2pc decline previously estimated by the Department of Commerce.
The American economy had expanded by 2.4pc in the final three months of last year, with the sharp downturn attributed to a surge in imports as companies raced to get ahead of the President’s tariff plans.
The S&P 500 rose in premarket trading closer towards its record highs amid fresh hopes the Fed would make rate cuts.
Mr Powell had told the Senate on Wednesday that the Fed was “going to take a careful approach” about cutting interest rates, although he acknowledged that it could happen later this year.
He said: “If we make a mistake here, people will pay…the cost for a long time.”
Mr Trump’s reported plan to undermine the Fed chair sent the dollar down to its lowest level in three years against major currencies.
The pound rose to more than $1.37, putting sterling at its highest level against the dollar since 2022, while the euro hit its strongest level since November 2021, nearing $1.17.
The dollar index, which measures the currency against six other units, is down 10pc this year and on course for a sixth straight month in the red, its worst run since 2017.
Mr Trump is considering former Fed governor Kevin Warsh and National Economic Council director Kevin Hassett as Mr Powell’s successors, the Wall Street Journal said, as well as former World Bank president David Malpass and Fed governor Christopher Waller.
