After President Donald Trump removed Fed governor Lisa Cook, the US dollar weakened and traditional safe-haven assets rose, raising concerns about the independence of the Federal Reserve.
The dollar index dropped 0.3%, then narrowed its losses as Trump posted on his Truth Social account that Cook would be immediately fired. Gold rose as much as 0.6%, while the yen and Swiss franc led gains among G10 currencies against the dollar. Asian stocks fell 0.7%. S&P 500 futures declined 0.2%.
The yield curve of US Treasuries steepened, with the two-year Treasury yield falling, reflecting growing market speculation that the Federal Reserve may cut interest rates as early as next month; meanwhile, the 30-year Treasury yield rose amid concerns that loose monetary policy could fuel inflation. French bond futures opened lower in Asian trading.
Trump’s actions have exacerbated the negative sentiment towards US assets in the market. Previously, his trade war and the continuously expanding deficit reignited the “sell-off of the US” rhetoric earlier this year, and Wall Street also questioned the US exceptionalism. Traders have been seeking alternatives to the US dollar (the world’s reserve currency) and US Treasuries. Any concerns over the erosion of the Federal Reserve’s independence could accelerate this shift.
“Assuming there is no legal recourse for Cook, firing him would heighten concerns over the Fed’s independence,” said Rodrigo Catril, a strategist at National Australia Bank in Sydney. “If Trump succeeds, it means he could have four board members who share his views. It remains to be seen whether these board members respect the Fed’s independence and adhere to its dual mandate.”
Before Trump made the announcement, the US Department of Justice said it planned to investigate Cook. This came after the Federal Housing Finance Agency’s director, Bill Pulte, filed criminal charges, accusing Cook of possible mortgage fraud.
It is not yet clear whether Cook intends to challenge her dismissal in court. If she does, Cook may immediately apply for an injunction to restore her position during the course of the lawsuit.
Cook is likely to file a lawsuit challenging the ouster decision, and “we believe she can win,” wrote Bloomberg Intelligence analyst Elliot Z. Stein. He wrote that merely alleging fraud may not be enough to meet the “cause” standard for ouster unless actual misconduct is established, which could at least require an investigation and possibly a conviction.
After Pulte initially called on US Attorney General Pam Bondi to launch an investigation, Cook said on August 20 that she had “no intention of being forced to resign over some of the issues raised in the tweet.”
Anna Wu, an investment strategist at Van Eck Associates, said: “The market usually views such headlines as a threat to the independence of the Federal Reserve. It has triggered uncertainty, but it has also reinforced the possibility that Trump’s strategy may come to dominate.” Technical analysis:
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Gold: The current price continues the consolidation trend after the breakout since last Friday. Technically, it still maintains a good form, but the impact of unexpected events also exists. Therefore, today we continue to keep the option of buying after the pullback following the high momentum breakout; at the same time, we also pair it with the option of buying after the low sweep in the yellow area for liquidity. For detailed positions, please consult the plugin.
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The Nasdaq: The green demand zone was not tested yesterday. Today, we suggest keeping it under observation for one day to see the effect. At the same time, continue to pay attention to the signal of the blue momentum breakthrough, but the starting price is slightly lower than yesterday. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: We are satisfied with the price trend and currently maintain the operation guideline of buying after a pullback following a breakthrough. Pay attention to the performance of the demand zone in the green area within the day. To prevent the impact of unexpected events, add a yellow area for defense below. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Key economic data and events to focus on today:
At 20:30, President Barkin of the Federal Reserve Bank of Richmond will deliver a speech.
20:30 US July Durable Goods Orders (initial)
22:00 US Conference Board Consumer Confidence Index for August
