DOJ Probe Into Fed's Powell Likely to Have 'Substantial' Downside Risks to US Dollar, ING Says

01:08 PM EST, 01/12/2026 (MT Newswires) -- The US Department of Justice's criminal probe into Federal Reserve Chair Jerome Powell likely carries "substantial" downside risks to the US dollar, ING Bank said Monday.

On Sunday, Powell said federal prosecutors served the Fed with grand jury subpoenas threatening a criminal indictment linked to his earlier testimony regarding the multi-year renovation of the central bank's office buildings. Powell suggested the probe reflected continued efforts by the Trump administration to influence monetary policy.

"The threat of criminal charges is a consequence of the (Fed) setting interest rates based on our best assessment of what will serve the public, rather than following the preferences" of US President Donald Trump, Powell said in a statement. "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions -- or whether instead monetary policy will be directed by political pressure or intimidation."

Trump called on the Fed to lower interest rates several times last year while also criticizing Powell. The central bank's Federal Open Market Committee delivered three back-to-back 25-basis-point rate cuts in 2025 amid concerns about the labor market. Powell's term as Fed chair is set to end in May.

The dollar likely faces "substantial" downside risks from any signs of further interference with the Fed's independence, ING said in a report published Monday. The US dollar index was down 0.4% in afternoon trade, tracking in the red for the first time in almost a week.

Overall, markets' initial reaction to the probe news was in line with Powell's views that the move was as an attack on the Fed's independence, as the dollar, equity markets and Treasury yields all flashed red, ING said. The Nasdaq Composite and the S&P 500 were mostly recently up, reversing losses from earlier in the day, while the Dow Jones Industrial Average was still in the red.

"However, Treasury futures have steadied this morning, and that is the most important signal markets aren't ready to price in a loss of Fed independence just yet, either on the view that Powell will indeed remain firm in his policy views, the FOMC won't be heavily affected, or that the DoJ subpoenas aren't likely to lead to an indictment," Francesco Pesole, foreign exchange strategist at ING, said in the note.

Trump denied any involvement in the investigation during a Sunday night interview with NBC News. "I don't know anything about it, but (Powell's) certainly not very good at the Fed, and he's not very good at building buildings," Trump reportedly said.

"The bond market will be the most important barometer, both on the short end of the curve if markets price back in more rate cuts, or in the long end with potential stress signs on independence risks," Pesole said Monday. "A sharp steepening of the curve could take the dollar on a fall."

ING said it would have had a "moderately bullish" view on the dollar this week amid expectations for core US consumer inflation to come in above market consensus at 0.4% on a sequential basis in December. The official consumer price index report for last month is scheduled to be released Tuesday. Another event that could have helped the dollar this week was the US Supreme Court's presumably unfavorable ruling on Trump's sweeping tariffs imposed last year, according to ING.

"But markets need to have a clearer view on this explosive Fed development before re-entering dollar longs," Pesole said. "A combination of hot inflation and more bets on the Fed's loss of independence would feed real rate concerns that could cause major (US dollar) depreciation."

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