EUR/USD price climbs, USD/JPY falls, and AUD/USD stalls as Fed uncertainty weighs on dollar
EUR/USD and USD/JPY react sharply to Trump-Powell tension and policy divergence
The U.S. dollar extended losses on Tuesday, weighed down by renewed political pressure on the Federal Reserve from President Donald Trump. The rift over monetary policy has shaken investor confidence in the Fed’s independence, driving gains in both the Euro and Japanese Yen, while the Australian Dollar faced headwinds tied to U.S.-China trade tensions.
EUR/USD held firm near the 1.15 level, extending its recent bullish run. The single currency continues to benefit from the Greenback’s erosion, despite growing expectations that the European Central Bank could cut interest rates in June. Market participants interpreted Trump's renewed criticism of Fed Chair Jerome Powell—and threats to remove him—as undermining the credibility of U.S. monetary policy. The dollar index, which tracks the currency against major peers, hovered near a three-year low of 98.
Meanwhile, USD/JPY dropped below the psychologically key 140 mark, with analysts pointing to rising demand for the Japanese yen as a haven amid equity market turbulence and U.S. policy uncertainty. FX strategists at ING and OCBC noted that Japan’s relatively stable domestic backdrop and possible government support packages may strengthen the Yen further. Technical indicators show bearish momentum, with downside targets seen at 139.60 and 135.00 in the near term.
EUR/USD, USD/JPY & AUD/USD price dynamics (Source: TradingView.)
Aussie retreats on trade war fears despite USD softness
The Australian dollar also benefited from the broader dollar weakness, with AUD/USD hitting a four-month high of 0.6440 before pulling back to 0.64 during European hours. While the Fed’s credibility crisis has weakened the dollar across the board, traders are cautious on the Aussie due to its deep trade links with China. Ongoing U.S.-China tariff tensions have sparked concern that a Chinese economic slowdown could weigh heavily on Australian exports.
Looking ahead, all eyes will be on upcoming U.S. and global PMI data, while FX traders continue to track developments in U.S. politics and central bank commentary. Any sign of a Fed policy pivot or easing from the ECB or RBA could intensify volatility across the major currency pairs.
In our recent coverage, we highlighted the growing divergence in global central bank paths. The current wave of political interference in the U.S. could deepen this divergence, particularly if ECB easing and safe-haven flows into JPY continue while the Fed remains stuck in political crossfire.
