Trump's dismissal of the Federal Reserve board member shakes the market, European stocks extend losses, French stocks drop over 2%, and the dollar gives back its losses

The actions of U.S. President Trump to dismiss Federal Reserve Governor Lisa Cook are pushing the independence of the Federal Reserve to the forefront. However, as Cook has made it clear that she will not resign, the market's initial reaction has eased somewhat.

On August 26, European stocks extended their losses, with the French Prime Minister announcing a confidence vote for the government on September 8, causing the yield on French 10-year government bonds to jump 9 basis points on Monday, and the French CAC 40 index fell more than 2%. The dollar regained most of its losses, while gold retraced some of its gains. Nevertheless, tensions remain high, with Asian stock markets down 0.7%. Investor concerns about central bank independence have led to a sell-off in long-term U.S. Treasuries, steepening the yield curve.

• European stocks extended their losses, with the French CAC 40 index down more than 2%, the Euro Stoxx 50 index down 1.2%, the German DAX index down 0.85%, and the UK FTSE 100 index down 0.8%.
• The Nikkei 225 index closed down 1%, at 42,394.40 points. The Tokyo Stock Exchange index fell 1.1%, at 3,071.99 points. The Seoul Composite Index closed down 1%, at 3,179.36 points.
• The U.S. Dollar Index fell 0.1%.
• The euro rose 0.2% to 1.1638 USD.
• The yen against the dollar remained largely unchanged at 147.76.
• The yield on 30-year U.S. Treasuries widened its decline, rising 5 basis points to 4.94%.
• The yield on Japanese 10-year government bonds remained flat at 1.615%.
• Bitcoin rose 0.7% to 110,354.61 USD.
• Spot gold rose 0.3%, at 3,375.68 USD/ounce.

Focus on Federal Reserve Independence

The core impact of Trump's actions lies in shaking the market's long-standing belief in the independence of the Federal Reserve. If he successfully dismisses Cook, Trump would have the opportunity to secure a majority of four out of seven seats on the Federal Reserve Board, potentially allowing for direct influence over future monetary policy. Cook's term was originally set to end in 2038.

Rodrigo Catril, a strategist at the National Australia Bank in Sydney, stated:

“Dismissing Cook raises concerns about the independence of the Federal Reserve. If Trump is successful, it means he could have four board members who share his views. Whether these members will respect the independence of the Federal Reserve and adhere to its dual mandate remains to be seen.”

According to the White House, Trump believes there are "ample reasons" to dismiss Cook, accusing her of making false statements in one or more mortgage applications. Cook is the first Black woman to serve on the Federal Reserve Board in Washington. The Federal Reserve declined to comment on the incident.

The risks to the independence of the Federal Reserve have also been warned by credit rating agencies. S&P Global Ratings pointed out earlier this month, when confirming the U.S. AA+ rating, that political trends are a potential risk point A report, including analyst Lisa Schineller, stated:

"If political developments put pressure on the strength of U.S. institutions, the effectiveness of long-term decision-making, or the independence of the Federal Reserve, ratings may also come under pressure. This, in turn, could jeopardize the dollar's status as the world's primary reserve currency — a key credit advantage."

Global Market Tension Spreads

Beyond the conflict between Trump and the Federal Reserve, global markets were already facing multiple pressures. Wall Street's initial optimism regarding a Federal Reserve interest rate cut has faded, and traders are preparing for potentially pessimistic inflation data later this week. The market widely expects that the Federal Reserve's preferred core inflation measure — the Personal Consumption Expenditures Price Index (PCE), excluding food and energy — may rise to a year-on-year increase of 2.9% last month, marking the fastest annual growth in five months.

On the geopolitical front, France's political crisis has also impacted the market. French Prime Minister Francois Bayrou announced a confidence vote for the government on September 8, causing the yield on France's 10-year government bonds to jump 9 basis points on Monday, with bond futures prices falling to their lowest since March. Additionally, Nasdaq 100 index futures fell by 0.1%