The US dollar fell to three-year lows after reports that US President Donald Trump is considering nominating Fed Chair Jerome Powells successor early as a way to undermine him.

The dollar is down 0.6% against a basket of major rivals, hitting early 2022 lows.

The dollar continues to sustain heavy losses this year as investors lose confidence in the US dollar due to Trumps trade wars and the governments yawning budget deficit.

Trump Versus Powell

Trump once again criticized Powell for refusing to cut interest rates, and asserting Powell will leave his position soon.

Powell told the Senate of the need to be cautious with monetary policies, as Trumps tariffs represent a risk to inflation.

Powell warned that while Trumps tariffs could cause a one-time hike in prices, the risk of sustained inflation is big enough to force the Fed into more caution about rate cuts.

The Wall Street Journal reports that Trump is considering choosing and announcing his successor by September or October as a way to undermine him.

Euro and Sterling Surge

The euro is up 0.7% today against the greenback to $1.174, the best since September 2021, after NATO allies vowed to raise defense spending to 5% of total GDP by 2035.

Sterling also rallied by a similar percentage to $1.376.

The dollar index is down 10% so far this year, but it faces even more pressures as the Federal Reserve gears up towards multiple interest rate cuts this year.

Fed official Michelle Bowman said on Monday that the time for an interest rate cut is approaching amid potential risks to the labor market.

The odds of a Fed 0.25% rate cut at the July meeting rose from 15% to 23% according to the Fedwatch tool.

The odds of a Fed September rate cut rose from 68% to 78%.

The bonds market is mostly stable, with two-year US treasury yields down 0.01% to 3.77%.