US Dollar Index pulls back as Powell probe revives Fed independence concerns

• US Dollar retreats from one-month highs as Fed independence concerns resurface.
• Fed Chair Jerome Powell's investigation and looming leadership change weigh on confidence in US monetary policy.
• Focus shifts to US CPI for fresh clues on the Fed’s monetary policy path.

The US Dollar Index (DXY), a gauge of the Greenback’s performance against six major currencies, edges lower on Monday as growing concerns over the Federal Reserve's (Fed) independence weigh on sentiment. At the time of writing, DXY trades around 98.73, down nealy 0.41% on the day.

The index has now retraced part of last week’s rally to one-month highs, signaling a loss of upside momentum after reports that the US Department of Justice (DoJ) issued grand jury subpoenas on Friday as part of a criminal investigation linked to Fed Chair Jerome Powell’s Senate testimony on the Fed’s $2.5 billion headquarters renovation project.

Late Sunday, Fed Chair Jerome Powell responded in a video statement, saying the Justice Department’s action “is not about my testimony last June or about the renovation of the Federal Reserve buildings.” Powell added that the threat of criminal charges is “a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

White House Senior Adviser Kevin Hassett said in a CNBC interview on Monday that the Fed’s headquarters renovation has seen “dramatic cost overruns,” adding that he does not believe the central bank’s interest-rate stance had anything to do with recent events.

US President Donald Trump has repeatedly criticised Jerome Powell in the past for not lowering interest rates aggressively enough. Last year, Trump also attempted to remove Fed Governor Lisa Cook, citing allegations of mortgage fraud, while successfully appointing Stephen Miran to the Board of Governors.

Miran has since dissented in favour of 50 basis-point rate cuts at every policy meeting since his appointment, underscoring growing political pressure around US monetary policy.

Meanwhile, President Donald Trump is set to announce a replacement for Jerome Powell, whose term as Fed Chair is due to end in May 2026. Markets widely expect Trump to nominate a candidate more closely aligned with his policy views.

On the macro front, last week’s US labour-market data showed the job market holding in reasonably decent shape, supported by a tick down in the Unemployment Rate even as the headline NFP figure fell short of expectations.

The data tempered expectations for a near-term Fed rate cut but kept the door open for easing later in the year, with traders continuing to price in around two cuts. Attention now turns to the US Consumer Price Index (CPI) data due on Tuesday for further clues on the Fed’s monetary policy path.