The US dollar's long-standing position as the world's premier safe-haven currency is showing unprecedented signs of erosion. Since mid-January, the dollar has fallen 9% against a basket of currencies, hitting its lowest level in three years12. This dramatic decline reflects something more ominous than typical currency fluctuations—economists warn it signals a potential loss of global confidence in the US financial system amid trade tensions and political uncertainty3.

The implications of this shift are profound. For decades, dollar dominance has provided America with "exorbitant privilege," enabling unnaturally low borrowing costs for the government, consumers, and businesses1. If this erodes, Americans could face higher mortgage and auto loan rates as lenders demand greater compensation for increased risks3. As University of California economist Barry Eichengreen notes, "Global trust and reliance on the dollar was built up over a half century or more, but it can be lost in the blink of an eye"12. While most analysts don't expect an immediate collapse of the dollar's reserve currency status, even a gradual decline threatens America's economic advantages and geopolitical leverage31.

The legal battle over whether Trump can fire Powell centers on a nearly century-old Supreme Court precedent. Under the Federal Reserve Act, board members can only be removed "for cause"—generally interpreted as misconduct, not policy disagreements12. Powell has consistently maintained that his removal "is not permitted under the law"34 and doesn't believe current Supreme Court cases challenging similar protections would apply to the Fed.

Trump's ability to dismiss Powell hinges on the potential overturning of the 1935 Humphrey's Executor ruling, which protects independent agency officials from presidential removal without cause35. The Supreme Court is currently considering cases involving Trump's firing of officials from the National Labor Relations Board and Merit Systems Protection Board that could set new precedent16. If the Court rules in Trump's favor, it would fundamentally alter the Fed's independence—a cornerstone of U.S. economic stability that has historically enjoyed bipartisan support24.

The notion of Federal Reserve independence—a cornerstone of U.S. financial stability—faces unprecedented challenges as Trump explores options to remove Powell before his term ends in May 2026. Market strategists warn that politicizing the central bank carries "very significant tail risks not only for the dollar, but also for the global financial system"1. This threat has fundamentally altered investor perceptions of U.S. assets, which have traditionally been considered foundational to global finance.

Financial experts emphasize that markets can accept interest rate cuts but strongly oppose presidential interference in monetary policy decisions. As Thierry Wizman of Macquarie noted, "The market is okay with rates coming down. What the market is not okay with is having the president or politicians tell the Fed that the rates need to come down"1. Despite Trump's Tuesday statement that he has "no intention of firing" Powell2, the damage to market confidence continues, with investors increasingly concerned about the precedent being set for central bank autonomy in the world's largest economy.