Powell Oster’s risk is low price, says a Deutsche Bank strategist

Trump said Powell should do this week “I’ll resign soon.” If the allegations from management officials that the central banker misinterpreted a lawmaker over the renovation to the Fed headquarters are proven true. The remarks added to Trump’s growing criticism of the Fed Chairman, which has called for aggressive interest rate cuts and suggests that Powell could nominate a successor before the end of his term.

Powell resisted pressure to ease monetary policy and said that, given the Fed’s independence, he would not resign if asked by the president. While acknowledging the cost overruns associated with renovation work, Powell disputes some reports on the issue, calling them “misleading.”

George Saravelos, global head of Deutsche’s FX strategy, said in a report to his client that he “prices a very low probability” that Powell was removed from the office. He pointed out Polymarket, the assigned betting platform Possibility of less than 20% It’s important to note that that’s happening and the dollar has been widely stable these days.

If Trump forces Powell, the following 24 hours will likely see a drop of at least 3% to 4% in trade-weighted dollars, as well as a sale of fixed income of 30 to 40 points, Sarabellos said. Greenbacks and bonds will carry a “sustainable” risk premium, he said, adding that investors may also be worried about the potential politicization of the Federal Reserve exchange with other central banks.

“Investors will interpret such events as a direct humiliation to produce independence and place the central bank under extreme institutional obsessions,” Saravelos said. “As the Fed sits at the pinnacle of the global dollar currency system, it says it is clear that the results echo far beyond our boundaries.”

Saravelos said that it will depend on whether Trump’s nomination for Powell’s successor and economic situation, whether Trump’s nominations are publicly combined, centering on central bank independence, and whether other Fed officials have publicly combined around central bank independence, will depend on how the market continues to respond beyond the original news.

“Beyond It concerns the highly vulnerable external funding position the US economy is currently finding,” he said.

In another report, Groep NV strategists, including Padhraic Garvey, said early exits by Powell were “impossible,” but that investors were priced with lower fees, faster inflation and lower Fed independence, which would lead to a steeper Treasury yield curve.

They also said it would create a “toxic mix” for the dollar, and the euro, yen and Swiss francs are set to make the most profitable.