The British pound briefly surged past $1.37 against the U.S. dollar, reaching its highest level since October 2021, amid market jitters over U.S. President Donald Trump’s latest comments about replacing the head of the Federal Reserve.
The spike in sterling came in response to reports suggesting that Trump is considering announcing a successor to Jerome Powell, the current chair of the U.S. central bank, as early as September or October well ahead of the official end of Powell’s term in May 2026. The suggestion sent shockwaves through currency markets, with investors interpreting the move as a threat to the Fed’s independence and a possible sign of political interference in monetary policy.
Trump’s increasing frustration with the Federal Reserve’s decisions especially its refusal to lower interest rates this year has become a recurring theme. On Wednesday, he called Powell “terrible” and confirmed he was reviewing “three or four people” as potential replacements. The prospect that Trump could appoint someone more aligned with his economic agenda unnerved traders and triggered a broad-based weakening of the U.S. dollar.
The president’s recent tariffs on imports from several countries, set to take effect next month, have also heightened concerns. The levies currently paused until July 9 are intended as retaliation but could stoke inflation, particularly as the cost of imported goods rises. The Fed has warned that such inflationary pressures may complicate its ability to maintain stable prices, which is a cornerstone of its mandate.
Powell, in recent testimony to lawmakers, reaffirmed the Fed’s “wait and see” approach to monetary policy in light of potential economic shocks from these trade measures. Still, pressure is mounting from the executive branch, raising fears that the central bank’s autonomy could be compromised if a more compliant chair is installed.
The economic backdrop adds further complexity. The U.S. economy contracted in the first quarter of 2025 its first quarterly decline in three years driven by falling government spending and a rush of imports as companies tried to get ahead of the looming tariffs. While some forecasts still see a rebound later in the year, the probability of a recession remains elevated, with major financial institutions putting the chances at roughly 40%.
Traders and analysts reacted swiftly to the developments. Kaspar Hense, a senior portfolio manager at RBC BlueBay Asset Management, noted that investors are betting against the dollar in “an environment where there is an erosion of institutions.” Kit Juckes, chief foreign exchange strategist at a major European bank, added that markets appear to be pricing in the possibility of a Fed chair more sympathetic to Trump’s policy direction.
Speculation over possible replacements has focused on figures seen as more supportive of the president’s views. Kevin Warsh, a former Federal Reserve governor, has been floated as a frontrunner, with Trump recently describing him as “very highly thought of.” Another contender is U.S. Treasury Secretary Scott Bessent, who has indicated a willingness to serve in whatever capacity the president requires.
The central concern among economists and investors is that any perception of diminished Fed independence could drive up borrowing costs across the economy. Confidence in the Fed’s credibility is essential to keeping inflation expectations anchored. If that confidence is undermined, lenders may demand higher interest rates to offset the added uncertainty, pushing up the cost of everything from mortgages to corporate loans.
