TOKYO – The US dollar and Treasuries slid in Asian trading on Aug 25 after President Donald Trump announced he was removing a Federal Reserve governor, which undermined confidence in US assets.
The dollar fell against the yen and euro after Mr Trump said on social media he was
removing Lisa Cook from her position on the Fed’s board of directors
, the latest in a series of attacks on the US central bank’s independence.
Asian shares followed declines on Wall Street with the Nikkei leading the fall with a 1.1 per cent drop as prospects for a Fed rate cut in September became less certain. US stock futures retreated.
“Markets aren’t panicking, but they are recalibrating, earlier rate cuts look more likely after Cook’s removal,” said Ms Charu Chanana, chief investment strategist at Saxo in Singapore.
“But this isn’t just about rate cuts, it’s about Fed independence and the growing institutional risks in the US.”
The dollar dropped 0.4 per cent to 147.24 yen. The euro was up 0.3 per cent on the day at US$1.165.
The US currency was little changed against the Singapore dollar at 1.2847.
The yield on benchmark 10-year Treasury notes rose to 4.2887 per cent compared with its US close of 4.275 per cent on Aug 25.
“All of this, tariffs included, is just another reason the US can’t be trusted,” said Bart Wakabayashi, the Tokyo Branch Manager of State Street. “There’s no credibility. That’s the basis of the US being the safest investment in the world. If you’re a responsible investor, it gives you pause.”
“I have determined that there is sufficient cause to remove you from your position,” Mr Trump said in a letter to Cook posted on his Truth Social platform.
Mr Trump said there was enough evidence that Ms Cook had made false statements on mortgage applications.
The US president has regularly threatened to fire Fed Chair Jerome Powell, who was nominated by Mr Trump during his first term in the White House and then nominated for a second term by Mr Biden. Mr Trump, who lacks the legal authority to fire the Fed chair except “for cause”, has backed away from that threat as Mr Powell gets closer to the expiration of his term as Fed chief next May.
Ms Cook’s exit from the Fed could speed up the president’s reshaping of the Fed. Her term had been due to end in 2038.
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 84 per cent odds of a September cut, according to the CME Group’s FedWatch Tool.
“Removing Cook increases concerns over Fed independence, assuming Cook has no legal recourse,” said Mr Rodrigo Catril, a strategist at the National Australia Bank. “If Trump succeeds, then this means he could potentially have four board members aligning with his view. Whether these board members respect Fed independence and adhere to the Fed’s dual mandate remains to be seen.” REUTERS, BLOOMBERG
