The U.S. dollar fell to its lowest level in three years on Thursday, following a report that U.S. President Donald Trump is considering nominating a successor to Federal Reserve Chair Jerome Powell earlier than expected, due to his dissatisfaction with the slow pace of interest rate cuts.

The U.S. currency fell by 0.6% against a basket of major trading partner currencies, including the British pound and the euro, reaching a level not seen since early 2022.

Political pressures and the slowing U.S. economy are putting pressure on the dollar.

The dollar has seen a significant decline this year due to concerns about the implications of the trade war led by Trump, in addition to worries about broader economic policies.

The latest downward pressures came after a report from The Wall Street Journal indicating that Trump may announce his candidate to succeed Powell ahead of the expected timeline, although Powell's term ends in May 2026.

Lee Hardman, Senior Currency Analyst at MUFG Bank, stated: 'Any candidate perceived as more open to cutting interest rates in line with Trump's demands will reinforce the current downward trend of the dollar.'

The euro and pound rose supported by European defense spending and the dollar's decline.

The euro rose by 0.7% against the dollar to reach $1.174, the highest level since September 2021, following a commitment by European NATO allies on Wednesday to increase defense spending to 5% of GDP by 2035.

In turn, the British pound rose by a similar amount to reach $1.376.

Richard Yetsinga, Chief Economist and Head of Research at ANZ Bank, stated: 'The possibility of an early announcement of the new Federal Reserve Chair is one of the factors putting pressure on the dollar today,' adding that 'confirming increased fiscal spending in Europe, especially in defense, also strengthens the euro.'

The dollar has declined more than 10% since the beginning of the year.

The dollar has fallen by more than 10% since the beginning of 2025, amid a mix of negative expectations regarding the trade war, increasing warnings about the sustainability of U.S. public debt, and concerns about the independence of the Federal Reserve.

Yetsinga explained that the bigger picture indicates that the U.S. economy is slowing at a faster pace than the rest of the world's economies, prompting investors to redirect their funds away from the United States.

Kelvin Lau, Chief Economist for China and Asia at Standard Chartered Bank, said: 'The possibility of an early nomination for the next Fed Chair has led to increased belief that the bank may move to cut interest rates sooner than expected, which has increased pressure on the dollar.'

Increasing political influence on the Federal Reserve undermines its credibility.

Jerome Powell, the Federal Reserve Chair, pushed back against Trump's repeated calls for an immediate cut in interest rates.

Mitul Kotecha, Head of Macro Strategy for Emerging Markets at Barclays, warned that the situation is such that there is a 'shadow central bank,' which threatens the credibility of the Federal Reserve.

He said: 'Just imagine a scenario where a candidate for the Fed presidency criticizes the bank itself... this is one of the biggest concerns about the impact of politics on the credibility of the central bank.'

Financial markets stabilize amid anticipation.

In the bond market, U.S. Treasury yields remained relatively stable, with the yield on two-year bonds dropping by 0.01 percentage points to 3.77%.

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