SINGAPORE — The dollar skidded in a volatile session on Tuesday after US President Donald Trump said he was removing Federal Reserve Governor Lisa Cook from her position, seen by markets as a fresh jab at the central bank’s independence.
The dollar index fell as much as 0.4 percent before recovering after Trump made the announcement in a letter to Cook that he posted on social media.
An index measuring the greenback’s strength against a basket of six currencies was last 0.1 percent lower at 98.368. The pullback came after the US currency had registered its biggest daily gain of the month on Monday.
“Markets aren’t panicking, but they are recalibrating, earlier rate cuts look more likely after Cook’s removal,” said Charu Chanana, chief investment strategist at Saxo in Singapore.
“But this isn’t just about rate cuts, it’s about Fed independence and the growing institutional risks in the US”
Trump said in the letter to Cook he was firing the governor over alleged improprieties in obtaining mortgage loans. In response, Cook said Trump has no authority to fire her from the central bank, and she will not resign.
The unprecedented move marks a sharp escalation of Trump’s battle against the Fed, which he blames for not lowering interest rates quickly, and intensifies investor worries about the US central bank’s independence.
“Trump’s move to fire Lisa Cook will cast a pall on Fed independence and could weigh on the dollar and US Treasuries,” said Vasu Menon, managing director of investment strategy at OCBC. “However, don’t expect major market moves as Trump’s action is somewhat unprecedented and may be challenged in US courts,” he added.
