U.S. Dollar Declines Amid Criminal Investigation of Fed Chair Powell

Impact of Powell's Investigation on Financial Markets

By Gregor Stuart Hunter

Market Reactions to Economic Data

SINGAPORE, Jan 12 (Reuters) - The U.S. dollar retreated from its strongest in a month early on Monday, as U.S. prosecutors opened a criminal investigation into Federal Reserve Chair Jerome Powell, adding to tensions with the Trump administration.

Currency Performance Overview

The dollar index, which measures the greenback's strength against a basket of six currencies, was last 0.3% lower at 98.899, snapping a five-day winning streak. Gold jumped to a record $4,563.61 per ounce after the New York Times reported the investigation and Powell issued a video statement defending the central bank's independence.

Gold and Cryptocurrency Trends

"Powell has had enough of the carping from the sidelines and is clearly going on the offensive," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

"This open warfare between the Fed and the U.S. administration -- and to the extent that you take Powell's comments at face value -- it's clearly not a good look for the U.S. dollar."

The dollar had advanced in early Asian trading after Friday's jobs report bolstered expectations the Federal Reserve will hold interest rates later this month, while reports of hundreds of deaths during protests in Iran heightened geopolitical tensions and stoked demand for safe havens.

"This should be positive for the U.S. dollar but we haven't seen any upside there yet," said Kyle Rodda, senior market analyst at Capital.com in Melbourne, referring to the unrest. "The question from here is whether the momentum behind the protest movement continues, and whether the regime cracks down even harder, opening the door to some U.S. involvement."

Financial markets are preparing for a busy data calendar this week, with Tuesday's release of the U.S. consumer price index for December providing one of the last key economic releases before the Federal Reserve's next monetary policy meeting at the end of January. "U.S. inflation remains above the Fed's target of 2.0%, and this may limit the FOMC's ability to cut rates further barring a material loss of momentum in the U.S. economy," analysts from Standard Chartered wrote on Sunday, saying further rate cuts are unlikely. "The labour market is not deteriorating further, and this should – at the margin – keep some upward pressure on both U.S. Treasury yields and the U.S. dollar." Major banks kick off the fourth-quarter earnings season in the coming week, with strong profit growth this year a crucial source of optimism for stock investors. A ruling from the Supreme Court on the legality of Trump's emergency tariffs could also be released as soon as Wednesday.

Against the yen, the U.S. dollar was last 0.2% lower at 157.56 yen, edging back from its strongest in a year after the head of Japanese Prime Minister Sanae Takaichi's coalition partner said on Sunday she may hold a snap election on February 8 or 15. On Friday, media had reported she was considering a vote that month citing government sources.

The euro was last 0.2% stronger at $1.1664, rebounding from a one-month low.

Against the Chinese yuan trading offshore in Hong Kong, the U.S. dollar was 0.1% weaker at 6.968 yuan, its softest in a week. The British pound nudged up 0.2% at $1.3433, rebounding from a one-month low. The Australian dollar strengthened 0.2% to $0.6704, while the New Zealand dollar was 0.2% firmer at $0.5746.

Bitcoin was last up 1.0% at $91,533.13, while ether edged up 0.3% to $3,127.37.

(Reporting by Gregor Stuart Hunter; Editing by Jacqueline Wong)