Gold leaps to record high, dollar drops as US prosecutors target Fed's Powell
Powell slammed the move as part of US President Donald Trump's push for greater control over the Fed, while for traders it added to a frenetic start to 2026, which has already seen the US capture Venezuela's Nicolas Maduro and set its sights on Greenland.
S&P 500 and Nasdaq futures were both down more than 0.6% ahead of the US market open, with the VIX 'fear gauge' up the most since November and gold - which investors buy as a hedge against both turmoil and inflation - hitting $4,600 an ounce.
Bond markets also priced in a slightly higher chance of short-term US interest-rate cuts. [US/] Europe's STOXX 600 share index stuck close to record highs as arms stocks set fresh peaks [.EU] and as the Swiss franc - another classic safe-haven play - and the euro and sterling all strengthened in the FX market. [/FRX][GVD/EUR]
"The latest development marks a significant escalation in the fight between President Trump and Fed Chair Powell," MUFG's Lee Hardman said, adding that "the repeated attacks on the Fed’s independence" continued to pose downside risks for the dollar.
Fed funds futures have added in about three basis points more in cuts this year, which is small but points to the risk that the Fed gets pushed into being more aggressive.
Gold's more than 1.5% jump was complemented by a 5% leap in silver. also buoyed by rising geopolitical tensions around Iran. However, oil prices ticked lower as commodity traders showed little immediate panic, especially with the prospect of more Venezuelan crude coming into the market. [O/R] [GOL/]
Trump said on Sunday he was weighing a range of strong responses, including military options, to a violent crackdown on Iranian protests which pose one of the biggest challenges to the country's clerical rule since the 1979 Islamic Revolution.
Iran's Foreign Minister Abbas Araqchi said on Monday via English translation that the situation was "under total control".
Brent crude futures dipped around 50 cents to sit just below $63 a barrel, while US West Texas Intermediate crude was at $58.60 a barrel, down 45 cents. [O/L]
Both benchmarks rose more than 3% last week in their biggest such increase since October, as Iran's clerical establishment stepped up its crackdown on the demonstrations.
While a premium has formed in oil prices in recent days, the market is still underestimating the risk given a wider conflict could affect the Strait of Hormuz, said Saul Kavonic, head of energy research at MST Marquee.
"The market is saying, 'Show me the disruption to supply', before materially responding," he added.
Trump vs Powell
The drop in Wall Street futures was led by bank shares. As well as putting the Fed back in the crosshairs, Trump had called late on Friday, 9 January 2026 for a one-year cap on credit card interest rates at 10% starting on 20 January.
Citigroup, JPMorgan Chase and Bank of America all dropped between 2.5% and 4% in premarket trading while American Express shed nearly 5% and consumer finance firms Synchrony Financial and Capital One slumped over 10%. [.N]
The second full week of the year will include U.S. inflation data, trade figures from China and a slew of US earnings beginning with JPMorgan and BNY on Tuesday, but for traders that was all for another day.
Fed chief Powell had responded to the Trump administration's threat of a criminal indictment by calling it a "pretext" aimed at pressuring the central bank to cut interest rates.
"This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure," Powell, whose term as chair is due to end in May, said in a statement.
Economists said the developments amount to a dramatic escalation in the fight between Powell and Trump, which dates back to the banker's first years as chair in 2018.
"Trump is pulling at the loose threads of central bank independence," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank based in Sydney.
"Investors won't be happy about it, but it shows actually Trump has no other levers to pull. The cash rate will stay what the majority of the FOMC wants them to be."
The dollar showed the sharpest reaction, falling even against typically risk-sensitive currencies like the Australian and New Zealand dollars. The dollar index was 0.4% lower in Europe and on track for its biggest one-day drop since mid-December.
The greenback had a miserable 2025, dropping more than 9% against major peers due to shrinking interest rate differentials as the Fed cut rates and as concerns about U.S. fiscal deficits and political uncertainty swirled.
"This open warfare between the Fed and the US administration ... it's clearly not a good look for the US dollar," said National Australia Bank's head of currency strategy, Ray Attrill.