Written by: BitPush News Mary Liu
As market concerns grow over US President Donald Trump potentially fulfilling his threat to fire Federal Reserve Chairman Jerome Powell and implementing policies that could lead to an economic recession, a wave of "selling US assets" is unfolding.
Data shows the S&P 500 index plummeted 2.7% to 5,142.18 points on Monday, down 13% year-to-date and falling 16% from recent highs; the Dow Jones Industrial Average dropped 972 points, a 2.5% decline; the Nasdaq Composite fell deeper into bear market territory, down 21% from its peak.
The bond market is equally grim, with 10-year US Treasury yields rising 7 basis points to 4.41% and 30-year yields jumping 10 basis points to 4.91%. In the forex market, the US dollar index dropped 0.9%, depreciating over 5% against the euro and yen, hitting a three-year low.
Investors are struggling with the risk of Powell potentially being fired (the White House last week indicated it was evaluating this), and the potential impact of Trump's policies on the world's largest economy. They are withdrawing from US safe-haven assets, and with broader risk-averse sentiment, gold surged to a historic high on Monday, while cryptocurrencies also rose, with Bit rising to $88,000 for the first time since March.
Recession + Fed Independence Concerns = Adding Insult to Injury
"At a time when the current government has already injected increasingly high levels of uncertainty into economic prospects, any attempt to replace Powell will exacerbate the downward pressure on US assets," said Ian Lyngen, Head of US Rate Strategy at BMO Capital Markets.
Trump again called for Fed rate cuts on Monday via Truth Social, writing: "Many are calling for 'preemptive rate cuts'."
Although legal scholars suggest it would be difficult for Trump to easily fire the Fed chairman, and Powell has stated he would not resign even if Trump requested it, such speculation has brought new blows to US assets. Washington's aggressive trade tariffs have already raised concerns about a US economic recession and intensified doubts about US Treasuries' status as the preferred safe-haven asset.
Multiple risks are intensifying market concerns about economic growth and inflation paths - and how the Fed will balance them. While traders expect the Fed to cut rates at least three times this year, former New York Fed President Bill Dudley wrote in a Bloomberg Opinion column that policymakers' actions might be slower than anticipated.
The Bloomberg Dollar Spot Index fell 1% on Monday, reaching its lowest level since late 2023, before slightly narrowing its decline. The yen rose to its highest level since last September, while the euro soared to its highest point in over three years.
The euro is currently trading around $1.15, close to strategists' most optimistic year-end predictions. Bloomberg data shows the yen at about 140.50 to the dollar, stronger than the year-end median forecast of 143.
"Trump's comments about potentially firing Fed Chairman Powell, even if these ideas do not become reality, constitute a significant threat to the Fed's independence in the international community, thereby threatening the dollar's status as a safe-haven currency," said Helen Given, a forex trader at Monex.
"If the US economy falls into recession and the central bank cannot or is unable to act independently, this recession could be exacerbated, bringing more market concerns," she added.
Option market traders' bearish sentiment on the dollar has reached its highest level since the Covid outbreak. The premium paid to hedge against the dollar's potential decline against a basket of currencies over the next year (relative to bullish positions) has reached its highest level since March 2020.
Monday's sell-off intensified after Kevin Hassett, director of the National Economic Council, said on Friday that Trump was studying this matter. According to informed traders, several hedge funds joined the dollar sell-off on Monday after Hassett's remarks. These traders requested anonymity as they are not authorized to discuss the matter publicly.
Commodity Futures Trading Commission aggregate data shows hedge funds' bullish sentiment on the dollar has dropped to its lowest level since last October. While headlines about Powell do not help market sentiment, others suggest that the continuously deteriorating global trade war may continue to dominate dollar trading.
"Central bank independence is so precious - not something to be taken for granted, and once lost, it's hard to regain," said Will Compernolle, macro strategist at FHN Financial in Chicago. Trump's "threat to Powell does not help foreign investors' confidence in US assets, but I still believe tariff news is the primary driver," he said.
Investors' demanded additional yield for holding 30-year bonds over two-year bonds has risen for nine consecutive weeks, the second time this has occurred since Bloomberg began compiling the data in 1992. In Monday morning trading, strong front-end demand through two-year futures block trades further pushed the yield curve steepening trend.
Dump US Dollars, Go Long on Gold and Bit
As Trump's trade war weakens US economic growth and profit prospects, warnings from Wall Street stock strategists are increasing.
Citi strategists last week downgraded their view on US stocks, saying cracks in "US exceptionalism" would persist. They joined institutions like Bank of America and BlackRock in recently turning bearish on US stocks.
"The latest catalyst for dollar selling might be pressure on Powell, but the reality is that dollar selling no longer needs more reasons," said Gareth Berry, a strategist at Macquarie in Singapore. "Everything that has happened in the past three months has provided enough reason for continued dollar selling, which could persist for months."
Meanwhile, Lawrence McDonald, former US macro strategy director at Societe Generale, suggests it might be time to sell gold and buy Bit.
He commented on X: "With the volatility index (VIX) near 30, Bit has never performed so well. This is a strong signal of Bit market maturity (good news) and a powerful proof of massive pressure on fiat currencies like the dollar."
