Global market rattles as criminal probe into US Fed chief raises questions about central bank's independence

Global markets were on edge on Monday, after the Department of Justice opened a criminal investigation into US Federal Reserve Chair Jerome Powell, stoking fresh concerns about the independence of the central bank.

Dollar, stocks slide as investors seek safe-havens

The dollar weakened and US equity futures retreated following the news. The dollar index, which measures the greenback's strength against a basket of six currencies, was recently 0.37 percent lower at 98.759, snapping a five-day winning streak. Futures on the Dow Jones Industrial Average dipped 199 points. S&P 500 futures shed 0.5 percent and Nasdaq-100 futures lost 0.7 percent, as market participants pared back risk amid what many see as an escalation in tensions between Trump and the Fed. Meanwhile, gold broke through $4,600 per ounce, while spot silver hit an all-time high of $84.60.

Powell accuses Trump of using legal threats to influence Fed policy

The criminal indictment centered on the central bank's renovation of its Washington headquarters and whether Powell lied to Congress about the scope of the project, reported the New York Times on Sunday. Powell called the action a "pretext" to gain more influence over the central bank and monetary policy.

"This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure" for lower interest rates and more broadly for greater say over the Fed, he said in a statement on Sunday night, revealing the subpoenas and threats.

Analysts warn attacks on central bank's independence are spooking markets

"The market has seen this before and doesn't like it. It's not about Powell at this point, it's about the independence of the Fed," said Jay Woods, chief market strategist for Freedom Capital Markets, reported CNBC. "So when news like this hits, the knee jerk reaction is to sell off."

"Trump is pulling at the loose threads of central bank independence," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank based in Sydney.

"Investors won't be happy about it, but it shows actually Trump has no other levers to pull. The cash rate will stay what the majority of the FOMC wants them to be," he added.

"Powell has had enough of the carping from the sidelines and is clearly going on the offensive," said Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney.

"This open warfare between the Fed and the US administration – and to the extent that you take Powell's comments at face value – it's clearly not a good look for the US dollar,” he noted.

(With input from Reuters; Cover via VCG)