SINGAPORE (Reuters) -U.S. President Donald Trump took the unprecedented action of firing Lisa Cook, the first African-American woman to serve as a Federal Reserve governor, over claims of mortgage borrowing impropriety.
The U.S. dollar softened across the board after the news, while the short-end U.S. Treasury yields fell in Asian hours on Tuesday on wagers that Cook’s replacement would be a dovish one who would push for more rate cuts. [US/] [FRX/]
COMMENTS:
THOMAS MATHEWS, HEAD OF MARKETS, ASIA PACIFIC, CAPITAL ECONOMICS, WELLINGTON:
“The market reaction has been fairly muted, that may be partly due to the time of day but also uncertainty about whether Trump will actually be successful in removing and replacing Cook. The bigger picture, though, is that right now Trump is pressuring the Fed to do something that it was probably going to do anyway, which is cut rates.
“The real drama might come if he continues to apply pressure once the easing cycle is clearly finished. And, even though the market reaction has been reasonably muted so far, it does provide a bit of a clue as to how that might play out: a steeper curve with long-end yields higher, if anything, and a weaker USD.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY:
“Trump’s removal of Cook, following his relentless pressure on Fed Chair Jerome Powell that saw the Fed Chair buckle last week, reignites questions around the Fed’s independence and further undermines its ability to maintain impartial monetary policy free from political influence.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:
“The move is another example of concerns over the Fed’s independence weighing on the dollar and has implications for the potential make-up of the FOMC going forward, which could see more dovish-leaning members. That adds to rate-cut prospects and a softer dollar outlook.”
KYLE RODDA, SENIOR FINANCIAL MARKET ANALYST, CAPITAL.COM, MELBOURNE:
“The concern is the intent of the Trump administration: it’s not to preserve Fed integrity, it’s to install Trump’s own people at the Fed.
“It goes back to trust in institutions… It’s another crack in the edifice of the United States and its investibility.
“This should be good for gold, and ultimately for bitcoin as well.”
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“Markets aren’t panicking, but they are recalibrating, earlier rate cuts look more likely after Cook’s removal. But this isn’t just about rate cuts, it’s about the Fed’s independence and the growing institutional risks in the U.S. Gold and the yen are rallying, investors are hedging not against one dismissal, but against the long shadow it casts over the Fed’s independence. The yield curve will steepen if markets believe looser policy comes at the cost of inflation control and credibility.”
BART WAKABAYASHI, TOKYO BRANCH MANAGER, STATE STREET, TOKYO:
“All of this, tariffs included, is just another reason the U.S. can’t be trusted. That’s what’s impacting the dollar. It’s chaos.
“There’s no stability. There’s no credibility. That’s the basis of the U.S. being the safest investment in the world. If you’re a responsible investor, it gives you pause.”
CAROL KONG, CURRENCY STRATEGIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:
“His removal of Cook is just another attempt to influence FOMC policymaking… he has been doing so for the past couple of months. As evidenced by the dollar’s fall against other major currencies, this development is certainly dollar-negative because it would just create another opening for Trump to install another dovish governor within the FOMC.”
SHOKI OMORI, CHIEF DESK STRATEGIST, MIZUHO SECURITIES, TOKYO:
“This doesn’t look good. The Fed doesn’t look like an independent organisation anymore. Loss of confidence in the Fed will probably prompt loss of confidence in the greenback as well.
“Markets have not priced in the fact that Trump could go after other Fed officials. What is priced in right now is that we have a higher chance of a rate cut in September and further cuts this year, which has pushed USDJPY down.
“The dollar and U.S. rates will perform (based on) how aggressively Trump speaks about the Fed going forward.”
(Reporting by Asia markets team; Editing by Subhranshu Sahu)
