Pound to Dollar Rate's Retreat Arrested by Trump's Assault on Powell

President Donald Trump speaks to Fed Chair Jerome Powell during a tour of the Federal Reserve in Washington, D.C., Thursday, July 24, 2025. (Official White House Photo by Daniel Torok)

Dollar weakness snaps a losing run for the pound to dollar exchange rate (GBP/USD).

GBP/USD rises a third of a per cent to 1.3439 on Monday, putting it in touch with short-term resistance at the nine-day moving average at 1.3450.

We were staring another few days of GBP/USD weakness square in the face, but then U.S. President Donald Trump intervened and shifted the exchange rate's fortunes and a rebound is underway.

The pair was set to enter the new week with momentum firmly to the downside until weekend developments concerning the Federal Reserve struck.

The dollar is down across the board Monday after the U.S. Justice Department said it was suing the Federal Reserve over what it alleges are overspends on the renovations of Fed HQ buildings.

What's more, the Justice Department indicated it was readying criminal charges against Fed Chair Jerome Powell over the matter.

"The dollar is lower, and the 'sell America' trade could come back into focus, as investors question once more the independence of the Fed," says Kathleen Brooks, research director at XTB.

Powell hit back in a statement, alleging these are menouvres by the Administration to capture the central bank:

"The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.

"This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure."

Although near-term policy at the Federal Reserve is unlikely to be altered significantly, and this means potentially limited USD impact, there are significant longer-term ramifications of Trump's actions.

Independence and credibility of the major U.S. institutions are fundamental to the investment case for America. Erode those pillars and destabilising effects take hold; financial markets and the economy operate at below-optimum levels.

For the dollar, this is an outright negative and it makes any future appreciation of the currency harder to come by.

This means that the recent GBP/USD pullback might end well ahead of where it would have in the absence of these Fed headlines. It also means it might peak at higher levels in the future.

In the week ahead, there's a chance Monday's rebound fades as markets adopt the long view, and GBP/USD turns lower again in sympathy with the recent pullback that was growing in stature and building a head of steam ahead of the Fed headlines.

If markets judge the Fed issue to be a long-burning theme, then some near-term USD recoveries could happen.

Tuesday's U.S. CPI inflation report will be watched closely, with the general rule of thumb being that a figure above the consensus expectation will boost the dollar and weigh on GBP/USD.

Also keep an eye on U.S. retail sales data due Wednesday.

In the UK, Thursday's November GDP data is on tap, with the data expected to show that the economy returned to growth.

A strong reading here can help GBP rise across the board.