The pound has reached its highest level in almost four years against the dollar, briefly surpassing $1.37, following US President Donald Trump’s comments on potentially naming a new head of the Federal Reserve by September or October.
Markets were unsettled after The Wall Street Journal reported that Trump had considered replacing Jerome Powell, who chairs the Fed committee that sets interest rates. This move could shake confidence in the Fed’s independence and lead to higher borrowing costs for investors demanding higher interest rates for holding debt.
The US economy shrank in the first three months of this year, raising concerns about inflation, which the Fed is keenly monitoring. The dollar weakened as traders bet on its decline due to Trump’s potential appointment.
Analysts say that confidence in the Fed’s independence is crucial to maintaining financial markets’ faith in controlled inflation. If this confidence is shaken, it could lead to increased borrowing costs for everyone.
Potential candidates for Powell’s replacement include Kevin Warsh, a former governor at the Fed, and US Treasury Secretary Scott Bessent, who Trump has praised for his loyalty. Warsh was mentioned by Trump as a potential candidate earlier this month, while Bessent recently stated he is “happy to do what President Trump wants me to do”.
Source: https://www.bbc.com/news/articles/cjrlyve8dq8o