FX Alert: Eccles Roulette, Dollar Buckles on Powell Scare, Snaps Back on Denial

For one frantic hour, the market went full “what-if,” trying to digest a scenario that’s been lurking like a tail-risk option in the drawer—rarely exercised, but always with teeth.

It was the kind of headline that makes traders spill their espresso—Trump’s rumored firing of Powell, Fed Chair and custodian of the Eccles temple, ripped through the tape like a rogue algorithm. For one frantic hour, the market went full “what-if,” trying to digest a scenario that’s been lurking like a tail-risk option in the drawer—rarely exercised, but always with teeth.

EUR/USD popped over 1.1700 as if someone had uncorked the volatility bottle, a sharp reaction for something that never even happened. The two-year yield tanked, the curve steepened, and macro desks dusted off those old "what if Powell quits" playbooks they’d filed under “implausible but possible.” And then—snap—Trump yanked the pin back in, telling the world it was “unlikely.” Markets promptly hit reverse, giving back most of the gains as if the whole thing had been a dress rehearsal for an opera that may never premiere.

This wasn’t about new information—it was about what happens when a known risk momentarily steps out of the shadows. Powell’s hypothetical exit has always loomed like a dormant volcano: low probability, but high consequence. And in that hour, we saw precisely what it could mean. A steepening curve signals a market ready to price in policy chaos or a hyper-dovish successor. The dollar’s selloff screamed regime change at the top, and maybe even political capture of the Fed.

Yet despite the headlines, markets never fully bought the story. Eurodollar futures didn’t push past 20bps of cuts in September. EUR/USD couldn’t crack 1.17225. That tells you something. It tells you this market has a hardened exoskeleton, formed over years of Trump-era tweet storms and political brinkmanship. It takes more than rumor to break through now.

Post-scare, focus has snapped back to macro. Wednesday’s PPI came in soft, but Tuesday’s CPI remains the anchoring reality: inflation isn’t tame enough to warrant a full-fledged pivot. September still prices a meager 15bps of easing—more placeholder than policy shift.

Today’s attention turns to retail sales and TIC data, the latter a quiet giant when it comes to assessing foreign appetite for Treasuries. If we see signs of sustained rotation out of USTs, the bearish dollar narrative could gain some real-world scaffolding. But until that emerges, we see a period of digestion—USD consolidating or even clawing back some ground.

As for EUR/USD, the pair’s reaction to Powell drama was brief and noisy—but not sticky. Despite short-term USD rates edging down 4–5bps and the specter of a dovish Fed Chair floating in the background, euro bulls couldn’t hold the highs. Why? Because Europe’s own headlines are no less chaotic. The €2tn EU budget push from von der Leyen is already DOA in Berlin, and French political noise is due to re-enter the stage this autumn. That puts a ceiling on euro enthusiasm, regardless of how soft the dollar might appear in isolation.

Bottom line? EUR/USD remains stuck in the low 1.16s—torn between a Powell story that might not materialize and an EU backdrop that’s heavy on ambition, light on delivery. Barring another Powell curveball, a drift back toward 1.150 looks more probable than a retest of overnight highs. We're not in break-out mode—we’re in geopolitical chop, where headlines offer heat, but rarely light.