By Micah Jonah
January 12, 2026
The United States dollar fell sharply on Monday after prosecutors opened a criminal investigation into Federal Reserve Chair, Jerome Powell, intensifying tensions between the central bank, the Trump administration and unsettling global markets.
The dollar index, which tracks the greenback against six major currencies, dropped 0.2 percent to 99.011, marking its biggest decline in three weeks, ending a five day rally. The sell off followed reports by The New York Times on the investigation, alongside a video statement from Powell defending the Federal Reserve’s independence.
Gold surged to a record high of 4,600.33 dollars per ounce as investors rushed toward safe haven assets amid growing political and institutional uncertainty in the United States.
Market analysts said the public confrontation between the Federal Reserve and the U.S. administration has damaged confidence in the dollar.
Powell’s move signals that he has had enough of mounting political pressure and is now pushing back openly, according to Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney. He said the standoff reflects poorly on the credibility of U.S. economic governance and weighs heavily on the dollar.
Earlier in Asian trading, the dollar had climbed to a one month high following a strong U.S. jobs report that reinforced expectations the Federal Reserve would hold interest rates steady later this month. Heightened geopolitical tensions in Iran, following reports of deadly protests, had also initially supported demand for the dollar.
However, analysts noted that despite unrest in Iran typically boosting the U.S. currency, the greenback has failed to capitalize on those risks so far.
Attention now turns to key U.S. economic data due this week, particularly the December consumer price index release on Tuesday, one of the final major indicators ahead of the Federal Reserve’s January policy meeting.
Analysts at Standard Chartered said inflation remains above the Fed’s two percent target, limiting the scope for further interest rate cuts unless the U.S. economy shows a clear slowdown. They added that resilience in the labour market could keep upward pressure on Treasury yields and the dollar.
In currency markets, the dollar edged 0.1 percent higher against the Japanese yen at 158.135, near its strongest level in a year, as political uncertainty grew in Japan following reports of a possible snap election in February.
The euro rose 0.2 percent to 1.1656 dollars, rebounding from a one month low, while the Chinese yuan strengthened to 6.9706 per dollar in offshore trading, its firmest level in a week.
Sterling gained slightly to 1.3422 dollars after reports that the European Union is seeking compensation clauses in case a future British government reverses post Brexit agreements.
The Australian and New Zealand dollars also posted modest gains, while cryptocurrencies advanced, with Bitcoin rising to nearly 92,000 dollars and Ether climbing above 3,150 dollars.
