The dollar weakened against all of its major peers after President Donald Trump moved to oust Federal Reserve Governor Lisa Cook from her post, denting sentiment toward the world’s reserve currency.
The Bloomberg Dollar Spot Index fell 0.3% after Trump sought to remove Cook following allegations that she falsified documents on mortgage applications. The Treasury curve steepened, with a drop in two-year yields reflecting growing speculation of a Fed interest-rate cut as soon as next month, while 30-year yields climbed on concern looser monetary policy would risk fueling inflation.
“Cook’s removal is dollar negative as it would create another opening for President Trump to appoint a new Governor who may be more inclined to support interest-rate cuts,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “It further challenges the independence of the FOMC that underpins the safe haven status of the dollar, which can in turn lead to more dollar selling.”
The latest Cook headlines add to the increasingly negative sentiment toward US assets as Trump’s trade policies and the ballooning deficit weigh on sentiment. Traders have been seeking out alternative havens to the dollar and Treasuries all year, and any perception of an erosion in the Fed’s independence may speed up that process.
The yen led gains versus the dollar in early Asia trading, rising 0.5% against the greenback. Treasury two-year yields dipped as much as four basis points to 3.69%, while those on 30-year bonds rose as much as four basis points to 4.93%.
“I see this as an extension of Trump’s intervention with the Fed and a warning,” said Anna Wu, an investment strategist at Van Eck Associates. “Markets typically take such headlines as a threat to Fed independence. The removal of Cook gives Trump’s administration more space to appoint governors inclined to his playbook.”
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