Forex Market Update: US Dollar Weakens Amid Intensifying Trump-Powell Dispute
January 12, 2026 — The US dollar began trading lower on Monday, retreating from monthly highs against several major currencies amid escalating tensions between President Donald Trump and Federal Reserve Chairman Jerome Powell. These developments have raised fresh concerns about the independence of the US Federal Reserve (Fed), casting a shadow over the greenback despite a decrease in market expectations for interest rate reductions in 2026. US Dollar Performance Overview
The US dollar showed broad weakness in the early trading hours, particularly against the Swiss franc, which emerged as the strongest currency during this period. Below is a summary of the percentage changes of the US dollar against selected major currencies today:
- EUR/USD: +0.29%
- GBP/USD: +0.19%
- USD/JPY: -0.08%
- USD/CAD: +0.15%
- AUD/USD: +0.12%
- NZD/USD: +0.28%
- USD/CHF: -0.35%
(The positive percentages represent gains for the currency in the left column against the currency in the top row.)
Federal Reserve Under Scrutiny
US federal prosecutors have opened a criminal investigation into Chairman Jerome Powell, focused on the Fed’s recent renovation project of its Washington headquarters and his prior testimony before Congress regarding the scope of this renovation. Powell has criticized these probes, labeling them as politically motivated attacks rather than genuine inquiries into his conduct.
This conflict comes despite recent US employment data suggesting some cooling in the labor market, which had softened expectations for Fed rate cuts in the near term. December’s Nonfarm Payrolls increased by 50,000 jobs, lower than the forecasted 60,000 and following a downward revision of November’s figures. Meanwhile, the unemployment rate edged down to 4.4% from 4.6%. These metrics tend to influence Fed monetary policy decisions but have so far been overshadowed by political tensions affecting the Fed.
Geopolitical Risks Support Dollar Demand
Although the dollar is under pressure from the domestic political turmoil, it could find some support as a safe-haven currency amid growing geopolitical tensions. Over the weekend, reports surfaced that President Trump is considering various military options regarding Iran, particularly following recent civil unrest and concerns over lethal force against protesters. Additionally, heightened conflict in Eastern Europe intensified after Russia launched a hypersonic ballistic missile strike on Ukraine, prompting the United Nations Security Council to call an emergency meeting on Monday.
Currency Market Highlights
- AUD/USD remained near 0.6700, supported by expectations for hawkish Reserve Bank of Australia (RBA) policy and a broadly weaker dollar, though further gains are limited by risk aversion.
- USD/JPY climbed back above 158.00 during early European trading, pressured by renewed political instability and a deepening trade dispute between Japan and China. Political uncertainties including the possibility of an early Japanese general election have also weakened the yen.
- EUR/USD advanced toward the 1.1700 level amid the dollar’s decline, with traders awaiting Eurozone Sentix Investor Confidence data for new direction.
- GBP/USD rose above 1.3400, benefiting from the same US dollar softness.
Commodities and Safe Havens
Gold continued its bullish momentum from last week, briefly touching a record high near $4,601 per ounce in Asian trading before settling close to $4,475. Silver also tested the $84 mark, reflecting heightened demand for haven assets. In contrast, crude oil futures struggled to sustain gains above $59.60 per barrel due to oversupply concerns and a potential resumption of Venezuelan exports, despite ongoing civil unrest in Iran.
Understanding Market Sentiment: Risk-On vs. Risk-Off
In financial markets, "risk-on" sentiment indicates investor willingness to seek higher returns by investing in riskier assets like stocks, commodities (excluding gold), and currencies linked to commodity exports such as the Australian and Canadian dollars. Conversely, during "risk-off" periods, investors prefer safer assets like government bonds, gold, and safe-haven currencies including the US dollar, Japanese yen, and Swiss franc.
Looking Ahead
Market participants will be closely monitoring developments in the Trump-Powell dispute, geopolitical tensions, and upcoming economic data releases such as the Eurozone Sentix Investor Confidence index. These factors will be critical in shaping the trajectory of the US dollar and global financial markets in the days ahead.
About the Author
Dhwani Mehta is a Senior Analyst based in Mumbai, India, specializing in Forex and commodities markets with over a decade of experience in global financial research and analysis.
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Legal Disclaimer: Financial markets can move quickly. The provided information is for informational purposes and should not be considered financial advice. Please consult a professional before making investment decisions.