Dollar Index Drops Amid Tariff Tensions and Fed Independence Concerns

The U.S. Dollar Index (DXY) weakened in Monday’s Asian session as markets react to rising trade tensions and renewed political pressure on the Federal Reserve.Key Takeaways:DXY declines during Asian session due to tariff pressure and Fed concerns.U.S. plans to implement new tariffs by August 1.Trump reportedly advised not to remove Fed Chair Powell.Markets fear any action against Powell could shake confidence in Fed independence.Analysts expect heightened dollar volatility if political risks escalate.The DXY slipped as investor sentiment turned cautious following statements from U.S. officials signaling the enforcement of new tariffs by August 1. U.S. Commerce Secretary Lutnick confirmed that the tariff deadline is non-negotiable, raising concerns over global trade stability and dampening dollar demand.Adding to the pressure, The Wall Street Journal reported that U.S. Treasury Secretary Bensont has recently advised President Donald Trump against firing Federal Reserve Chair Jerome Powell, a move that would likely trigger a broader crisis of confidence in U.S. monetary policy.Analysts say the situation poses serious risks for the dollar. According to FP Markets analyst Aaron Hill, “Removing Powell would severely undermine the independence of the Federal Reserve, which is critical for the credibility of both the U.S. dollar and Treasury markets.” He warns that such a move could cause sharp volatility in currency and bond markets.The weakening of the dollar also reflects broader uncertainty over future U.S. interest rate policy. While Fed board member Waller has reiterated his support for a 25-basis-point rate cut in July, any disruption to Fed leadership could complicate the central bank’s forward guidance.With traders already wary ahead of key data releases later this week — including initial jobless claims and Fed speeches — the combination of trade tensions and institutional uncertainty is creating a fragile environment for the dollar.