The U.S. dollar recorded its largest single-day drop in nearly three weeks, as the Federal Reserve faces a subpoena from a Justice Department grand jury, reigniting market concerns over potential political interference in monetary policy. The Bloomberg Dollar Spot Index fell 0.2% during Asian trading hours on Monday, marking its steepest decline since December 23. This followed a disclosure by Fed Chair Jerome Powell that the U.S. Department of Justice had served the central bank with a grand jury subpoena, threatening criminal charges related to testimony given to Congress in June concerning the ongoing renovation of the Fed's headquarters. Powell indicated that the threat of criminal prosecution stems from the Fed's practice of setting interest rates based on its own assessment of what best serves the public interest, rather than aligning with the preferences of President Donald Trump. Trump has repeatedly criticized Powell on social media, urging him to cut rates and once threatening to fire him, though he later backtracked and denied ever considering such a move. "Trump appears resolutely determined to exert control over the Fed, which could potentially undermine the central bank's monetary policy independence," said Fiona Lim, a senior foreign-exchange strategist at Malayan Banking Bhd. "Trump's eagerness to lower borrowing costs suggests his next appointed chair could be a dove and a loyalist, a scenario that poses risks for the dollar." The escalating tensions have intensified worries about the central bank's autonomy. On Monday, U.S. stock index futures declined, while Treasury futures edged higher. "Given the risk that Powell's ability to perform his duties as Fed Chair could be impeded, macro traders are likely to lean towards shorting the dollar," strategists noted.
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