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The pound briefly hit its highest level against the dollar for almost four years after markets were unnerved by a report that US President Donald Trump could bring forward the naming of the new head of the US central bank. <\/p>\n
Sterling rose above $1.37, which is the strongest since October 2021.<\/p>\n
The dollar weakened after the Wall Street Journal reported Trump had considered naming Jerome Powell’s replacement as head of the Federal Reserve by September or October.<\/p>\n
The US Fed is independent from the government and Mr Powell chairs a committee that decides on interest rates which have remained unchanged this year, prompting a series of angry outbursts from Trump.<\/p>\n<\/div>\n
On Wednesday, Trump called Mr Powell “terrible” and said he was looking at “three or four people” who could replace him. Mr Powell’s term is due to end in May 2026.<\/p>\n
There are concerns the US president could install someone who is sympathetic to his demands.<\/p>\n
Earlier this week, Mr Powell told US lawmakers the Fed would wait and see how the American economy reacts if Trump’s so-called retaliatory tariffs against a range of countries come into force next month, after being paused until 9 July. <\/p>\n
The Fed is concerned that the levies, which are paid by the businesses importing the goods, might push up inflation.<\/p>\n
The US economy shrank in the first three months of this year – the first decline for three years – as government spending fell and imports rose as firms raced to get products into the country before the tariffs went live.<\/p>\n
JP Morgan, the investment bank, has lowered the chance of the US economy falling into recession this year but at 40% the probability of a slowdown remains comparatively high.<\/p>\n
Kaspar Hense, a senior portfolio manager at RBC BlueBay Asset Management, said traders were betting the dollar would fall “in this environment, where there is an erosion of institutions”.<\/p>\n
While Kit Juckes, chief FX strategist at Societe Generale, said: “I think the market is pricing in President Trump appointing someone who at least at first sight appears more sympathetic to his cause.”<\/p>\n
Mr Powell was himself a Trump appointee. During Trump’s first term in the White House, Mr Powell replaced the then Fed chair Janet Yellen.<\/p>\n
Trump had criticised Ms Yellen for keeping interest rates too low, stating: “I think she should be ashamed of herself.”<\/p>\n
Ms Yellen went on to become the US Treasury Secretary under President Joe Biden and said she did not think that Trump had a grasp of macroeconomic policy.<\/a><\/p>\n<\/div>\n