The dollar and longer-dated U.S. Treasuries slid on Tuesday after President Donald Trump announced he was firing a Federal Reserve governor, an unprecedented move that further undermines confidence in the Fed’s independence and U.S. assets.
The U.S. currency fell against the yen and euro after Trump said he was removing Lisa Cook from her position on the Fed’s board of directors, citing allegations of improprieties in obtaining mortgage loans and escalating the president’s battle against the central bank.
Stock markets in Asia followed declines on Wall Street as the news muddied the outlook for Fed policy and stoked uncertainty over prospects for a rate cut next month.
Gold touched a two-week high and U.S. equity futures fell, as Trump also renewed tariff threats on trade partners.
“All of this, tariffs included, is just another reason the U.S. can’t be trusted,” said Bart Wakabayashi, the Tokyo Branch Manager of State Street. “There’s no credibility. That’s the basis of the U.S. being the safest investment in the world. If you’re a responsible investor, it gives you pause.”
The dollar dropped 0.3% to 147.32 yen. The euro was up 0.2% on the day at $1.1637.
The dollar index , which tracks the greenback against a basket of currencies, retreated 0.2% after a 0.7% gain on Monday.
The yield on the benchmark U.S. 10-year Treasury note rose 1.8 basis points to 4.293%. The yield on the 30-year bond rose 3.2 basis points to 4.921%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 3 basis points to 3.7%.
Trump has regularly threatened to dismiss Fed Chair Jerome Powell, and earlier this month he fired a top Labor Department official after accusing her, without evidence, of manipulating jobs data that had disappointed him.
“I have determined that there is sufficient cause to remove you from your position,” the president said in a letter to Cook posted on his Truth Social platform, claiming there was enough evidence that Cook had made false statements on mortgage applications.
Trump, who lacks the legal authority to fire the Fed chair except “for cause”, has backed away from that threat as Powell gets closer to the expiration of his term as Fed chief next May.
Cook’s exit from the central bank could speed up the president’s reshaping of the Fed and the rate-setting Federal Open Market Committee (FOMC). Her term had been due to end in 2038.
“The move is another example of concerns over Fed independence weighing on the dollar and has implications for the potential makeup of the FOMC going forward,” said OCBC currency strategist Christopher Wong. “That adds to rate cut prospects and a softer dollar outlook.”
READ ALSO:Trump Fires Fed’s Cook Alleging False Statements On Mortgage Forms
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.6%, after U.S. stocks ended the previous session with mild losses. Japan’s Nikkei index sank 1.1%.
Futures markets pointed to a nervous day ahead for Europe and the U.S.
Euro Stoxx 50 futures were down 0.57%, German DAX futures were down 0.42% and FTSE futures fell 0.35%. The U.S. S&P 500 e-minis slid 0.17%.
Major brokerages, including Barclays, BNP Paribas and Deutsche Bank, now expect a 25-basis-point Fed rate cut in September. Fed funds futures traders are pricing in 83% odds of a September cut, according to the CME Group’s FedWatch Tool.
Data for August due before the Fed’s September 16-17 meeting could still sway policy. The U.S. personal consumption prices reading, due on Friday, is considered the Fed’s preferred inflation gauge. Hotter-than-expected U.S. producer price data last month raised some questions over the certainty of a cut.
Extending months of turmoil over on-again, off-again tariff policies, Trump also threatened “subsequent additional” import duties on countries with digital taxes.
U.S. crude dipped 0.5% to $64.47 a barrel. Gold rose 0.2% to $3,372.29 per ounce after touching $3,386.27, the highest since August 11.
Specifically, oil prices edged down on Tuesday after surging nearly 2% in the previous session, as traders kept a close watch on developments in the Russia-Ukraine conflict for the potential impact on fuel supplies from the region.
Brent crude futures fell 16 cents, or 0.23%, to $68.64 per barrel at 0005 GMT, while West Texas Intermediate (WTI) crude futures also lost 16 cents, or 0.25%, to $64.64.
Both contracts rose to their highest in over two weeks on Monday, with WTI futures climbing above the 100-day moving average.
“The risks for crude oil prices appear tilted toward further gains, particularly if the price sustains a move above the $64–$65 resistance level,” IG analysts said in a note.
Oil’s rally on Monday was primarily driven by concerns of supply disruptions as Ukraine struck Russian energy infrastructure, and as traders anticipated more U.S. sanctions on Russian oil.
The attacks disrupted Moscow’s oil processing and exports, created gasoline shortages in some parts of Russia, and came in response to Moscow’s advances on the front lines and its pounding of Ukraine’s gas and power facilities.
Barclays, in a note to clients on Monday, said that oil prices remain in a tight range amid geopolitical volatility and relatively resilient fundamentals.
U.S. President Donald Trump has renewed his threat to impose sanctions on Russia if there is no progress towards a peace deal in the next two weeks.
Traders are also awaiting the latest U.S. inventory data from the American Petroleum Institute (API) later in the day, with expectations pointing to a fall in crude and gasoline stocks but a possible build in distillate inventories.
