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Dollar drops, gold reaches record highs as US prosecutors pursue Powell

Dollar and Wall Street futures fell and gold rose?on monday as Federal Reserve chair Jerome Powell claimed that the Trump administration threatened him with criminal charges over the refurbishment of the central bank's HQ.

This has heightened concerns about the Fed’s independence from political influences and added to the?a?frenzied start to 2026. Already, the U.S. captured Venezuela’s Nicolas Maduro. They have also ramped up the talk of taking over Greenland.

S&P futures dropped more than 0.5%. Meanwhile, safe-haven metals like gold - that investors use as a hedge against inflation and turmoil - reached another record high. Money markets have priced in an increased chance of U.S. short-term interest rate cuts.

Europe also opened with a 0.2% drop from its record highs. The Swiss Franc, another safe-haven currency, strengthened by 0.6% at 0.796 to the dollar. The euro also gained 0.4%.

Lee Hardman, MUFG's Lee Hardman, said that the latest development marked a'significant escalation' in the fight between Trump and Powell. He added that the "repeated attacks on the Fed independence" continue to present downside risks for dollar.

Fed funds?futures has added about three basis point more in cuts in this year. This is small, but it points out the risk that Fed will be pushed to become more aggressive.

Gold prices rose to a record-high of more than $4600 per ounce. This was also boosted by the rising geopolitical tensions surrounding Iran. However, oil prices did not react.

Trump said that he is weighing several strong options, including military options to respond to the violent crackdown of Iranian protests, which are posing one of the greatest challenges to the clerical regime in the country since the 1979 Islamic Revolution.

Abbas Araqchi, Iran's foreign minister, said via English translation on Monday that the situation was "under control".

Brent crude futures fell 9 cents to just above $63 per barrel during early London trading. U.S. West Texas intermediate crude dropped 10 cents to $59.02 per barrel.

The clerical establishment in Iran intensified its crackdown against the protests, and both benchmarks increased by more than 3%.

Saul Kavonic is the head of MST Marquee's energy research. He said that while oil prices have increased in recent days, they are still underestimating risk, given the possibility of a wider conflict affecting the Strait of Hormuz.

He added that "the market says, 'Show Me the Disruption to Supply' before it materially responds."

TRUMP VS POWELL

For traders, the second week of the year will be dominated by U.S. inflation figures, Chinese trade data and an array of U.S. earnings, starting with JPMorgan Chase on Tuesday and BNY a day later.

Powell, the Fed chief, had called the threat by the Trump administration of criminal charges a "pretext", aimed at forcing the central bank into cutting interest rates.

Powell's term is due to expire in May. In a statement, Powell said that "this unprecedented action must be viewed in a broader context" of the threats and pressures from the administration.

Economists say the latest developments represent a dramatic intensification of the conflict between Powell and Trump that dates back to Powell's first year as chairman in 2018.

Andrew Lilley is the chief rates strategist of Barrenjoey Investment Bank, a Sydney-based investment bank.

Investors will not be happy, but this shows that Trump doesn't have any other levers at his disposal. The FOMC will keep the cash rate at what they want it to be.

The dollar was the most affected currency, even when compared to currencies that are typically considered risky like Australian and New Zealand Dollars. The dollar index fell 0.4% in Europe, and is on course to have its largest one-day decline since mid-December.

The greenback suffered a terrible 2025. It dropped more than 9% compared to major peers as interest rates differentials shrank as the Fed cut its rates, and concerns about U.S. budget deficits and political unrest swirled.

Ray Attrill, head of currency strategy at National Australia Bank, said: "This open war between the Fed and U.S. government... is clearly not good for the U.S. Dollar." (Additional reporting provided by Tom Westbrook, Ankur Banerjee and Alexander Smith; editing by Alexander Smith).

(source: Reuters)