The U.S. dollar and longer-dated Treasuries slipped on Tuesday after President Donald Trump announced the dismissal of Federal Reserve Governor Lisa Cook, a highly unusual move that heightened concerns over the Fed’s independence and U.S. financial stability.
The dollar weakened against the euro after Trump accused Cook of improprieties related to mortgage loans and confirmed her removal from the Fed board. The decision escalates the president’s ongoing clash with the central bank and added uncertainty over the outlook for interest rates.
Asian stocks followed Wall Street lower, with investors rattled by the policy uncertainty. Gold climbed to a two-week high, while U.S. equity futures dipped as Trump also revived his threat of tariffs against trade partners.
“The U.S. can’t be trusted when credibility is constantly undermined—tariffs included,” said Bart Wakabayashi, Tokyo branch manager at State Street. “If you’re a responsible investor, this gives you pause.”
The euro gained 0.1% to $1.1631, while the yen held at 147.82 per dollar after earlier rising 0.5%. The dollar index slipped 0.1%, giving back part of Monday’s 0.7% rally.
In bond markets, the 10-year Treasury yield rose 3.1 basis points to 4.306%, and the 30-year yield climbed 4.7 bps to 4.936%. The two-year yield, more sensitive to Fed rate expectations, edged down 1.3 bps to 3.717%.
Trump has previously threatened to dismiss Fed Chair Jerome Powell, though legal limits prevent removal without cause. Powell’s term ends in May 2026, but Cook’s exit—originally slated to remain until 2038—could accelerate Trump’s effort to reshape the Fed and the Federal Open Market Committee (FOMC).
“The move underscores risks to Fed independence, pressuring the dollar and raising rate cut expectations,” said Christopher Wong, currency strategist at OCBC.
Global equities reacted cautiously. MSCI’s Asia-Pacific index excluding Japan fell 0.5%, Japan’s Nikkei lost 0.9%, and futures pointed to a weaker open in Europe and the U.S., with Euro Stoxx 50, DAX, and FTSE futures all down.
Markets now anticipate a 25-basis-point Fed rate cut in September, with CME FedWatch showing 83% odds. Upcoming personal consumption expenditure (PCE) data, the Fed’s preferred inflation gauge, will be critical ahead of the September 16–17 meeting.
Elsewhere, U.S. crude slipped 0.5% to $64.48 a barrel, while gold gained 0.2% to $3,373.32 an ounce, having earlier touched $3,386.27—its highest since August 11.
