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The Wall Street Journal said Trump may reveal his pick to run the Fed by September or October. The report follows weeks of lobbying by the president for Powell to lower borrowing costs.

Investors and analysts reckon Powell’s replacement will most likely share the president’s dovish bias, prompting speculation interest rates could eventually fall faster and deeper than markets are currently pricing. An early selection could also confuse markets by forcing them to monitor the monetary policy commentaries of Powell and his replacement.

“This increases the risk that Powell will become a ‘lame duck’ in his final months as Fed chair, and with it the risk of earlier interest rate cuts,” said Michael Pfister, an FX analyst at Commerzbank AG.

Potential contenders to succeed Powell include former Fed Governor Kevin Warsh, current Fed Governor Christopher Waller, National Economic Council Director Kevin Hassett, former World Bank President David Malpass and US Treasury Secretary Scott Bessent, Bloomberg News has previously reported.

Traders have been adding to bets on more US interest-rate cuts in the past days, as Fed officials including Waller and Michelle Bowman, two Trump nominees, appeared to support a move as early as July. The chance of a quarter-point cut in the next meeting rose from zero to 20% and the amount of easing expected by the end of the year jumped from 50 to 62 basis points in a week.

Last week, US rates traders amassed a record futures bet that whomever Trump appoints will lead the central bank to cut interest rates almost immediately. Two-year yields — the most sensitive to changes in monetary policy — fell almost 20 basis points over the past week to trade at 3.75% on Thursday, a seven-week low.

Wagers on lower interest rates are also weighing on the dollar, which weakened against all of its Group-of-10 peers. The Bloomberg’s Dollar Spot Index slumped 0.6% to the weakest level in over three years. Commerzbank’s Pfister forecasts the euro could climb to $1.18 in the coming days if policymakers continue to shift to favor earlier rate cuts.

“Powell continues to attract the heat of the Trump administration,” said Franceso Pesole, a currency strategist at ING. Now that other Fed officials “are openly disagreeing with his cautious stance, markets may well be quick to respond with a dovish re-rating of expectations to soft US data.”

Investors will get further evidence on the health of the US economy on Thursday, with jobless claims, durable goods orders, home sales and final first-quarter growth figures. Fed officials including Austan Goolsbee, Tom Barkin, Mary Daly, Beth Hammack and Michael Barr, are also set to speak.

Powell reiterated his message that officials need not rush to lower rates during his testimony before the Senate Banking Committee this week. He said recent economic data is backward looking and many economists expect “a meaningful increase in inflation” over the course of this year due to tariffs.

“Trump’s actual behavior in terms of appointments to the Fed has been reasonably orthodox,” Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, said in comments prior to the WSJ report. “He of course appointed Powell himself. So one needs to be a little careful about taking all of the rhetoric at face value.”

What Bloomberg Strategists Say...

“The suggestion that Washington is seeking to assert more control over monetary policy could threaten the perceived independence of the US central bank. That won’t do much to improve the appeal of US assets. We are also approaching a seasonally weak period for the dollar. Since 2005, July has tended to be the weakest month for the Bloomberg Dollar Spot Index with an average decline of 0.6%.”

Conor Cooper, Macro Squawk. Click here for the full piece.

Still, traders in the currency options market have been ramping up bets that the dollar’s slide has room to run. One-month risk reversals — a key gauge of sentiment — swung sharply in favor of further downside this week. It was the ninth-largest bearish repricing in greenback options on record over a three-day window.

“Naming a ‘shadow’ Fed Chair is dollar-negative as it risks undermining the Fed’s credibility,” said Elias Haddad, a strategist at Brown Brothers Harriman & Co. “Conflicting signals between the official Chair and a perceived ‘shadow’ figure will increase market confusion, lead to mixed policy expectations, and erode the Fed’s image as a non-partisan institution.”

--With assistance from Winnie Hsu, Nicholas Reynolds, Alice Gledhill, Greg Ritchie and Vassilis Karamanis.

(Updates market moves, adds context, comments. A previous version of this story was corrected to show Kevin Warsh is a former Fed governor.)