Dollar hits 3-year low on report Donald Trump could pick next Federal Reserve chair early

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The dollar weakened to a three-year low after a report that Donald Trump was considering nominating the next Federal Reserve chair early.

The US currency fell 0.3 per cent against a basket of its trading partners on Thursday in Asia, hitting a level last reached in early 2022.

The move came after a Wall Street Journal report that the US president was considering announcing his pick to succeed Jay Powell earlier than expected. Powell’s term expires in May 2026.

“The possibility of an early Fed chair announcement is one of the factors pushing the dollar lower today,” said Richard Yetsenga, chief economist and head of research at ANZ.

“On the European side the confirmation of higher fiscal spending, in this case around defence, is also giving the euro a boost,” he added.

The euro strengthened 0.2 per cent against the dollar on Thursday after Nato allies in Europe pledged to raise defence spending to 5 per cent of GDP by 2035.

The dollar has weakened more than 10 per cent this year on concerns about the US economy, including weak manufacturing data and growing warnings about the sustainability of the country’s debt pile.

“The broader backdrop remains one where the perception is the US economy is slowing more quickly than the rest of the world and that’s been contributing to investor allocation out of the US,” said Yetsenga.

Kelvin Lau, senior economist for greater China and Asia at Standard Chartered, said the possibility of an early nomination for the next Fed chair “has led to the belief that the Fed could shift to an earlier” interest rate cut.

Powell has pushed back against Trump’s call for an immediate reduction in interest rates.

“You could just imagine a scenario where a Fed nominee starts criticising the Fed,” said Mitul Kotecha, head of emerging markets macro strategy at Barclays. “It’s become a shadow Fed environment, and that is one of the biggest fears on the impact on Fed credibility.”

Yields on the rate-sensitive two-year US Treasury fell 0.02 percentage points to 3.76 per cent. US futures for the S&P 500 and the Nasdaq edged up 0.1 per cent.