Dollar drops, gold rises as Trump says he’s firing Fed’s Cook: Markets wrap

The dollar weakened and traditional safe-haven assets advanced after President Donald Trump moved to oust Federal Reserve Governor Lisa Cook, stoking concerns over the central bank’s independence.

A gauge of the dollar retreated 0.3% before paring losses as Trump posted on his Truth Social account that Cook will be removed effective immediately.

Gold rose as much as 0.5%, while the yen led gains against the dollar among Group-of-10 currencies. Asian stocks fell 0.6%. Futures for the S&P 500 dipped 0.2%.

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.

Trump’s move adds to the negative sentiment toward US assets, after his tariff war and widening deficit revived a “Sell America” theme earlier this year and Wall Street questioned US exceptionalism.

Traders have been seeking alternatives to the dollar, the world’s reserve currency, and Treasuries, and any perception of eroding Fed independence could accelerate that shift.

“Removing Cook increases concerns over Fed independence, assuming Cook has no legal recourse,” said Rodrigo Catril, a strategist in Sydney 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.”

Trump’s announcement came after the US Department of Justice indicated it planned to investigate Cook, following a criminal referral from Federal Housing Finance Agency Director Bill Pulte alleging that she may have committed mortgage fraud.

That investigation marked the latest in a series of moves by the Trump administration both to increase legal scrutiny of Democratic figures and put pressure on the central bank.

It wasn’t immediately clear whether Cook intended to challenge the dismissal in the courts. If she challenges the firing, Cook could immediately seek an injunction reinstating her while litigation moves forward.

Cook said Aug. 20, after Pulte initially called on US Attorney General Pam Bondi to investigate, that she had “no intention of being bullied to step down from my position because of some questions raised in a tweet.” 

“Markets typically take such headlines as a threat to Fed independence,” said Anna Wu, an investment strategist at Van Eck Associates. “It sparks uncertainty but also reinforces that the Trump playbook is likely to dominate.”

What Bloomberg strategists say:

“Bond traders have been given another reason for pushing the Treasury curve even steeper after President Trump removed Lisa Cook. Investors are betting on two rate cuts by year-end, but that looks set to climb as speculation will increase that at least one meeting will include a 50-bp reduction.”

—Mark Cranfield, MLIV.

Contracts for the Nasdaq 100 fell as much as 0.5% as Trump also threatened to place export curbs on chips. 

Stocks were already under pressure after initial optimism about the Fed lowering interest rates vanished and US stocks retreated Monday. Stocks rallied on Friday after Federal Reserve Chair Jerome Powell opened the door for a possible interest-rate cut.

The sense of euphoria eased as doubts over the pace of those reductions lingered on Wall Street as traders braced for a not-so-friendly price reading later this week.

Policymakers are grappling with inflation that’s still above their 2% goal — and rising — and a labor market that’s showing signs of weakness. That unnerving reality, which pulls policy in opposite directions, is made worse by a high degree of uncertainty about how each of those factors will evolve over the coming months. 

The Fed’s preferred gauge of underlying inflation probably ticked higher last month, with the personal consumption expenditures price index excluding food and energy rising 2.9% from a year ago. That would be the fastest annual pace in five months.

Aside from the macro picture, the next big test for the stock market will be a read on what’s been driving gains for the past few years: artificial-intelligence euphoria.

Nvidia Corp. is due to unveil its results Wednesday after the close. The company’s size — it has the biggest weighting in the S&P 500 at almost 8% — and its position at the center of AI development have made it a bellwether for the broader market. 

This story was produced with the assistance of Bloomberg Automation.