Trump this week said Powell should “resign immediately,” if allegations from an administration official that the central banker misled lawmakers over renovations to the Fed’s headquarters prove true. The remark added to growing criticism of the Fed chair by Trump, who has demanded aggressive interest rate cuts and signaled he may nominate a successor before Powell’s term ends.

Powell has resisted pressure to ease monetary policy and said he won’t step down if asked by the president, given the Fed’s independence. While acknowledging cost overruns related to the renovation work, Powell has disputed portions of reports about the issue and called them “flatly misleading.”

George Saravelos, Deutsche’s global head of FX strategy, said in a report to clients that the market is “pricing a very low probability” of Powell being removed from office. He pointed to Polymarket, a betting platform, which assigned less than a 20% chance of it happening, and noted that the dollar has been broadly stable recently. 

If Trump were to force Powell out, the subsequent 24 hours would probably see a drop of at least 3% to 4% in the trade-weighted dollar, as well as a 30 to 40 basis point fixed-income selloff, Saravelos said. The greenback and bonds would carry a “persistent” risk premium, he said, adding that investors may also grow anxious about the potential politicization of the Fed’s swap lines with other central banks.

“Investors would likely interpret such an event as a direct affront to Fed independence, putting the central bank under extreme institutional duress,” Saravelos said. “With the Fed sitting at the pinnacle of the global dollar monetary system, it is also stating the obvious that the consequences would reverberate far beyond US borders.”

How markets continue to react beyond the initial news would depend on whether other Fed officials publicly coalesced around the central bank’s independence, Trump’s nomination for Powell’s successor and the state of the economy, Saravelos said.

“Beyond that, we worry about the very vulnerable external funding position which the US economy currently finds itself in,” he said. “This raises the risk of far larger and more disruptive price moves than the ones we have outlined.”

In another report, ING Groep NV strategists including Padhraic Garvey said an early exit by Powell was “unlikely,” but would lead to a steepening of the Treasury yield curve as investors priced in lower rates, faster inflation and diminished Fed independence.

They said it would also create a “toxic mix” for the dollar, with the euro, yen and Swiss franc set to benefit most.