A growing number of hedge funds have trimmed their dollar positions this week, after National Economic Council Director Kevin Hassett said on Friday that Donald Trump is studying whether he’s able to fire Fed Chairman Jerome Powell, according to reports by Bloomberg.
The report cites Data from the Commodity Futures Trading Commission as showing that Hedge funds are now the least bullish on the greenback since October.
The developments come as the Federal Reserve’s independence is increasingly being questioned — an unsettling prospect for investors already grappling with the impact of trade tensions and interest rate uncertainty. The Bloomberg Dollar Spot Index dropped as much as 0.9% to its lowest level since January 2024, while 10-year Treasury yields climbed and US equity futures slumped by up to 1%.
“Hedge fund sentiment toward the dollar has weakened substantially,” said one London-based macro manager. “When Fed credibility is in doubt, that undermines everything from safe haven flows to rate differentials.”
While speculation around Powell’s job security has dominated headlines, most hedge fund managers say the primary driver remains macro — a combination of softening growth, sticky inflation, and policy risk.
Still, Powell’s potential ousting has intensified concerns about central bank independence, historically a bedrock of investor confidence in US markets.
“Threats to Fed independence could have long-term implications on US asset appeal,” said Will Compernolle, macro strategist at FHN Financial. “That’s something hedge funds are definitely paying attention to.”
Strategists at firms including Brown Brothers Harriman and Macquarie agree the outlook for the dollar remains weak. “The attack on Fed independence is intensifying,” wrote BBH’s global head of market strategy Win Thin. “Even just the suggestion that Powell’s removal is being studied is deeply negative for market psychology.”
The broader market reaction has included a steepening yield curve, as two-year yields fell on expectations of looser monetary policy, while longer-term yields rose. Equity strategists at Citi, Bank of America and BlackRock have all recently downgraded their views on US stocks, citing diminishing “US exceptionalism” and the growing policy uncertainty.
Whether Trump can actually fire Powell remains legally questionable. The Federal Reserve Act only allows removal “for cause,” typically understood to mean serious misconduct. But for hedge fund managers, the legal technicalities matter less than the headline risk and erosion of market trust.
“The legal feasibility is secondary,” said a portfolio manager at a multi-strategy fund. “Markets are trading off perception, and the perception now is that the Fed isn’t insulated from political pressure. That alone is enough to stay cautious on the dollar.”
