Dollar and long-term Treasuries fall as Trump intensifies Fed clash; gold gains

• Trump fires Fed governor; dollar falls 0.1%, 10-year Treasury yield rises to 4.306%.

• Asian stocks fall; Fed rate cut odds at 83%, Nikkei down 0.9%, Euro Stoxx futures down 0.53%.

• Fed watches August inflation before Sept meeting; crude falls 0.5% to $64.48, gold up 0.2%.

The dollar and long-term U.S. Treasury bonds declined on Tuesday following President Donald Trump’s unprecedented move to dismiss Federal Reserve Governor Lisa Cook. The announcement, citing alleged mortgage application improprieties, further intensified concerns about the Fed’s independence and undermined trust in U.S. financial assets. Trump shared the dismissal on his Truth Social platform as tensions between the administration and the Fed escalate.

The U.S. dollar weakened against the euro, dropping 0.1% to $1.1631, while the yen remained flat at 147.82 per dollar after earlier rising over 0.5%. The dollar index retreated 0.1%, reversing gains made earlier Monday. Meanwhile, yields on the 10-year Treasury increased by 3.1 basis points to 4.306%, and the 30-year yield climbed 4.7 basis points to 4.936%. Conversely, the two-year yield, closely linked to rate expectations, slipped 1.3 basis points to 3.717%.

Asian stock markets mirrored losses on Wall Street amid growing ambiguity over Federal Reserve policy and doubts about a possible interest rate cut next month. Japan’s Nikkei index dropped 0.9%, and MSCI’s broadest Asia-Pacific index excluding Japan fell 0.5%. U.S. futures also decreased, with Euro Stoxx 50 futures down 0.53%, German DAX futures off 0.45%, FTSE futures losing 0.35%, and S&P 500 e-minis edging lower by 0.07%.

The uncertainty surrounding the Fed’s independence—as illustrated by Trump’s move and continued tariff threats—has raised questions about the future composition of the Federal Open Market Committee (FOMC). According to OCBC currency strategist Christopher Wong, this has contributed to expectations of a rate cut and added pressure on the dollar. Several major banks, including Barclays, BNP Paribas, and Deutsche Bank, now predict a 25 basis points cut in September. Fed funds futures put the odds of such a reduction at 83%, per CME Group’s FedWatch Tool.

The economic calendar ahead remains critical for Federal Reserve policy decisions, with August inflation data expected before the Fed’s September 16-17 meeting. Friday’s personal consumption expenditure (PCE) report, the Fed’s favored inflation indicator, could affect rate cut prospects after recent robust producer price figures stirred uncertainty.

Compounding the volatile environment, Trump reiterated threats to impose “subsequent additional” tariffs on countries with digital taxes, extending ongoing trade tensions. This added strain contributed to market jitters alongside the Fed governor’s dismissal.

In commodity markets, U.S. crude oil prices fell 0.5% to $64.48 per barrel. Gold prices gained 0.2% to $3,373.32 per ounce after touching a two-week high of $3,386.27.