Global markets opened the week on edge after news of a criminal investigation into Federal Reserve Chair Jerome Powell sent shockwaves through currencies, equities, and commodities. The development reignited fears about the political independence of the world’s most powerful central bank—and investors wasted little time repositioning.
The clearest signal came from precious metals. Gold vaulted to a record above $4,600 an ounce, while silver surged more than 5%, as traders rushed into traditional safe havens. At the same time, the U.S. dollar weakened sharply and Wall Street futures slid, marking another turbulent chapter in what has already been a frenetic start to 2026.
Markets React to a Political Flashpoint
S&P 500 and Nasdaq futures were both down more than 0.6% ahead of the U.S. open, while the VIX “fear gauge” jumped to its highest level since November. The sell-off reflected growing concern that political pressure on the Fed could influence monetary policy at a sensitive moment for the global economy.
Powell strongly criticized the investigation, calling it a “pretext” designed to force the central bank into cutting interest rates more aggressively—something President Donald Trump has repeatedly demanded. Economists described the move as a dramatic escalation in a long-running feud that dates back to Powell’s early years as Fed chair.
“This is a significant escalation in the fight between President Trump and Fed Chair Powell,” said MUFG’s Lee Hardman, warning that repeated attacks on the Fed’s independence pose ongoing downside risks for the dollar.
Dollar Slides as Rate-Cut Bets Creep Higher
The dollar absorbed the brunt of the shock. The Dollar Index (DXY) fell about 0.4%, on track for its biggest one-day drop since mid-December, even weakening against typically risk-sensitive currencies like the Australian and New Zealand dollars.
Bond markets responded more cautiously. Fed funds futures priced in a slightly higher probability of near-term rate cuts, adding only a few basis points—but enough to reflect growing uncertainty over whether political pressure could eventually influence policy decisions.
The greenback’s decline also extended a rough trend from last year. In 2025, the dollar lost more than 9% against major peers, weighed down by narrowing rate differentials, fiscal concerns, and political instability.
“This open warfare between the Fed and the U.S. administration is clearly not a good look for the U.S. dollar,” said NAB currency strategist Ray Attrill.
Banks Lead Wall Street’s Retreat
Financial stocks led the premarket losses, hit by both political uncertainty and fresh policy threats. Trump renewed calls for a one-year cap on credit card interest rates at 10%, rattling lenders and consumer finance firms.
Shares of Citigroup, JPMorgan, and Bank of America fell between 2.5% and 4%, while American Express dropped nearly 5%. Consumer lenders such as Capital One and Synchrony Financial fared even worse, slumping more than 10% in early trading.
Europe Holds Steady, Oil Stays Calm
Across the Atlantic, markets were steadier. Europe’s STOXX 600 hovered near record highs, supported by fresh gains in defense stocks. Traditional havens like the Swiss franc strengthened, while the euro and sterling also edged higher.
Oil prices, however, told a more restrained story. Brent crude dipped below $63 a barrel, and U.S. WTI slipped to around $58.60, despite rising geopolitical tensions involving Iran. Traders appeared reluctant to price in major supply disruptions without concrete evidence, even as analysts warned the market may be underestimating the risk of escalation around the Strait of Hormuz.
A Test for Fed Credibility
Beyond the day’s price moves, the Powell investigation raises a deeper concern: whether markets will begin to doubt the Fed’s ability to operate free from political influence. Economists argue that perception alone could have lasting consequences.
“Trump is pulling at the loose threads of central bank independence,” said Andrew Lilley, chief rates strategist at Barrenjoey. “Investors won’t be happy about it, but ultimately the cash rate will stay where the majority of the FOMC wants it.”
For now, markets are voting with their feet—buying gold, selling the dollar, and trimming risk. Whether this episode becomes a temporary shock or a turning point for global confidence in U.S. monetary leadership may depend less on court outcomes and more on how convincingly the Fed can defend its independence in the weeks ahead.