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The conflict between the White House and the Federal Reserve dominated another day in currency markets.
Global financial institutions took the unusual step of closing ranks on Monday, issuing a coordinated defence of the US Federal Reserve’s independence amid deepening tension between President Trump and Fed chair Jerome Powell. The joint statement – signed by the heads of the Bank of England, the European Central Bank and others – warned that “political intimidation has no place in monetary policy.”
The statement followed reports that the US Justice Department may bring charges against Powell, a move that market participants viewed as an overt attempt to influence monetary policy. Investors quickly shifted into defensive mode: gold surged to record highs, the dollar weakened, and Treasury yields dipped as traders sought safety. Several major Wall Street figures, including JPMorgan’s Jamie Dimon, publicly warned that political pressure on the Fed could undermine global trust in US financial institutions.
In London, officials avoided direct comment but privately acknowledged the “sensitivity” of market reaction to events in the US. With UK and European data mixed and global institutions under strain, traders are preparing for another potentially volatile session as central-bank credibility — the cornerstone of modern monetary systems — takes centre stage.
Despite the political turmoil, stock markets have so far proved resilient. The Dow Jones and S&P 500 both closed at record highs, highlighting investor confidence in corporate earnings and underlying economic strength. Still, analysts caution that sentiment could change quickly if the clash in Washington escalates or if today’s inflation figures surprise to the upside.
Elsewhere, the Japanese yen hit its lowest level in over a year as rumours of a snap election swirled. The country’s stock markets powered ahead on the suspicion that prime minister Sanae Takaichi would try to capitalise on strong polling to reestablish her party’s parliamentary majority.
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GBP: Pound steady despite weak spending data
The pound held its ground as traders looked past softer UK retail and spending figures. Consumer spending in December fell at its sharpest pace since 2021, but sterling’s stability suggests markets are waiting for this week’s GDP report before adjusting expectations for the Bank of England.
GBP/USD: the past year
EUR: Euro firm as ECB joins Fed defence
The euro edged higher after the ECB joined its global peers in defending Fed chair Jerome Powell. Investors saw the statement as a sign of institutional unity, while Germany’s steady industrial recovery and inflation easing to 2% provided further support.
GBP/EUR: the past year
USD: Dollar slips amid political pressure on Fed
The dollar weakened as traders weighed the fallout from the White House’s confrontation with the Federal Reserve. Safe-haven demand drove gold higher, while attention now turns to US inflation data — the next key test of the Fed’s independence and policy outlook.EUR/USD: the past year
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