The US dollar drops significantly following Donald Trump's criticism of the Federal Reserve chairman

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The dollar languished near its lowest level in three years on Tuesday as President Donald Trump’s attacks on the Federal Reserve chairman eroded investor confidence in the US economy.

The US currency sagged close to the decade-low reached the previous day against the Swiss franc, and hovered near a three-and-a-half trough versus the euro.

Trump ramped up his criticism of Federal Reserve chief Jerome Powell on Monday in a Truth Social post, calling him a “major loser” and demanding that he lower interest rates “NOW” or risk an economic slowdown.

The Federal Reserve, after a series of rate cuts late last year, has left its benchmark policy rate on hold in the range of 4.25 per cent to 4.50 per cent since December.

On Friday, White House economic adviser Kevin Hassett said the president and his team were continuing to study whether they could sack Powell, a day after Trump said Powell’s termination “cannot come fast enough”.

There is no direct legal precedent, since no president has ever tried to fire a Federal Reserve Chief.

Trump’s onslaught comes after Powell said last week the central bank can afford to be patient in judging how to set policy, and that rates should not be lowered until it is clearer US tariff plans won’t stoke persistently higher inflation.

Trump’s tariffs have rocked financial markets in recent weeks and also remain a big concern for investors.

A close up of Donald Trump wearing a blue suit and red tie

US President Donald Trump has ramped up his criticism of Federal Reserve boss Jerome Powell. Source: AAP / Tom Williams/CQ-Roll Call/Sipa USA

“There’s this terrible stalemate between Trump and Powell, fomenting concern that there will be some sort of action taken to replace Powell, which would create a real panic in the dollar,” said Eric Kuby, chief investment officer at North Star Investment Management.

Moreover, on the trade front, “every day that there are no deals struck to provide any relief, it creates continued anxiety” that Trump’s policies in their current form could be destructive for the economy, Kuby said.

On Monday, China accused Washington of abusing tariffs and warned countries against striking a broader economic deal with the United States at its expense, ratcheting up its rhetoric in a spiralling trade war between the world’s two biggest economies.

“The longer the speculation about the independence of US monetary policy continues, the longer the USD is at risk of falling,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

“It may take another sell‑off in the US government bond market or U.S. equity market to encourage President Trump to refrain from such comments.”

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