Deutsche Bank: "Powell being forced to resign" is a significant and underestimated risk.

Deutsche Bank strategist warns that the risk of President Trump forcing Federal Reserve Chairman Powell to resign is a major risk that the market is currently underestimating, which could lead to significant selling of the US dollar and US treasuries. This week, Trump stated that if government officials' accusations that Powell misled Congress on issues related to the renovation of the Fed headquarters are true, Powell should "resign immediately." This statement intensified Trump's criticism of the Fed chairman, who has been calling for aggressive interest rate cuts and hinting at nominating a successor before the end of Powell's term. However, the risk of Powell being forced to resign is severely underestimated by the market. George Saravelos, global head of foreign exchange strategy at Deutsche Bank, pointed out in a report that the market pricing of the probability of Powell being dismissed is "very low," with prediction markets like Polymarket giving a probability of less than 20%, and the US dollar remaining relatively stable recently. Saravelos predicted that if Trump forces Powell to resign, the US dollar trade-weighted index could drop by at least 3%-4% within the following 24 hours, and the fixed income market could face 30-40 basis points of selling. The dollar and bonds will bear a sustained risk premium. Such an event could constitute a major blow to the independence of the Federal Reserve. Saravelos stated: Investors may interpret such events as a direct assault on the independence of the Federal Reserve, subjecting the Federal Reserve to extreme institutional pressure. Powell (Fed) sits at the top of the global dollar currency system, and it is obvious that the consequences will extend beyond the United States. Other institutional viewpoints are also converging. ING strategists stated in another report that while Powell's early departure is "unlikely," it would lead to a steepening of the US Treasury yield curve, as investors would price in lower rates, faster inflation, and a weakening of Federal Reserve independence. They believe this would create a "toxic combination" for the dollar, with the euro, yen, and Swiss franc benefiting the most. Saravelos warned that the US economy is currently in a "very fragile external financing position," increasing the risk of "much larger and more destructive price swings than we outline." "Following in the footsteps of Nixon": Trump accuses Powell of "overdoing" renovations The controversy surrounding the renovation of the Federal Reserve headquarters could become Trump's excuse to remove Powell due to interest rate differences. White House budget director Russell Vought accused Powell of perjury or violating building permit regulations in the $2.5 billion renovation project to Congress. A previous article by Wall Street revealed that this strategy is seen as echoing the Nixon administration's practice of undermining the Fed's credibility by spreading false information in 1972. Since a Supreme Court ruling limits the president's power to dismiss Fed officials due to policy differences, the Trump team is trying to create a legal basis for a "legitimate reason." Powell has stated that he will not resign at the President's request, emphasizing the independence of the Federal Reserve. Despite acknowledging cost overruns in the renovation project, Powell disputed some of the details in the reports, calling them "completely misleading." This article is reprinted from "Wall Street News" and edited by GMTEight: Jiang Yuanhua.