GLOBAL MARKETS-Asian stocks hesitant, dollar slips on Trump's attack on Powell

By Ankur Banerjee

SINGAPORE, June 26 (Reuters) - Asian stocks wobbled and the dollar was under pressure on Thursday as the prospect of an early appointment of the next Federal Reserve Chair by President Donald Trump stoked concerns over the independence and credibility of the U.S. central bank.

The U.S. dollar selling kicked up a notch after a media report said Trump has toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October in a bid to undermine his position.

A move like that is seen by some analysts as an effort to influence monetary policy through a "shadow" Fed chair even before Powell leaves office in May 2026.

While markets have been soothed by a ceasefire between Israel and Iran that appeared to be holding, reducing the risks of disruptions to the oil trade and underpinning sentiment, traders are on edge about Trump's July 9 deadline on imposing tariffs on trading partners and his pressure on the Fed.

In stocks, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was slightly higher as the rally in Wall Street took a breather overnight..N Tokyo's Nikkei .N225 rose 1.5% to highest since lat January.

European stock futures STXEc1 pointed to a muted open with currency markets taking the spotlight. The euro EUR=EBS firmed to its strongest level since September 2021 and last fetched $1.6837.

The Swiss franc CHF=EBS firmed to a decade-high while the Japanese yen JPY=EBS strengthened 0.3% to 144.815 per dollar.

Trump has repeatedly criticised Powell for not cutting interest rates and has floated the idea of firing him or naming a successor soon, denting investor confidence in U.S. assets and undermining the central bank's independence.

"I think it’s a given that Trump's pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump's agenda of lowering interest rates," said Tony Sycamore, market analyst at IG.

"The issue with this is it will resurface questions from earlier in the year around the Fed's independence, which, as we saw, undermines confidence in the Fed and the USD."

The dollar index =USD, which measures the U.S. currency against six rivals, wallowed at its lowest level since March 2022. The index has slid 10% this year as investors, worried by Trump's tariffs and their impact on U.S. growth, look for alternatives.

Financial markets remain on edge over Trump's chaotic trade policies as the clock ticks down to his July 9 deadline for trade deals.

Powell, who resumed two days of congressional testimony on Wednesday, said Trump's tariff plans may well just cause a one-time jump in prices, but the risk it could fuel more persistent inflation is large enough for the central bank to be careful in considering further rate cuts.

Fed officials still expect to cut interest rates this year, with two priced in by markets but the timing is uncertain as officials wait on looming trade deadlines and for more certainty about the scope of the tariffs.

"With the drop in U.S. yields and speculation about the next Fed chair, investors are considering the impact of a move dovish Fed, and the dollar is feeling the heat," said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management. "Tomorrow’s PCE inflation data is going to be important."

Traders are now pricing in nearly 25% chance of the Fed cutting rates in its end of July meeting compared to 12.5% last week, the CME FedWatch tool showed.

The two-year U.S. Treasury yield US2YT=TWEB, which typically moves in step with interest rate expectations, was down 1.5 basis points at 3.764%, its lowest level in seven weeks.

"No one knows exactly how tariffs will impact inflation, which will keep central banks in conservative mode, particularly the Fed," said Bank of America strategists, noting downside risks to global growth remain relevant, not only due to trade wars but also due to geopolitical developments.

"We are carefully monitoring fiscal policy across key countries that can affect global interest rates. Unsustainable fiscal dynamics can trigger an accident in bond markets," they said in a note.

In commodities, oil prices rose on Thursday to continue recovering after a volatile month so far due to the conflict between longtime rivals Israel and Iran.

Brent crude futures LCOc1 rose 0.37% to $67.93 a barrel, while U.S. West Texas Intermediate crude (WTI) CLc1 gained 0.45% to $65.21. O/R