President Donald Trump announced the immediate removal of Federal Reserve governor Lisa Cook over allegations of mortgage fraud; Cook denied wrongdoing and refused to resign, prompting a likely legal contest over presidential authority to dismiss a Fed governor. The action intensifies pressure on the central bank to enact steep interest rate cuts to support the economy and jobs. Markets reacted with US government bond sales that pushed 30-year Treasury yields higher, a weaker dollar against major currencies and sterling, a rise in gold to multi-week highs, and modest gains in US equities amid legal and policy uncertainty.
In a move without precedent in modern US history, Trump said on Tuesday evening that Cook was "effective immediately" removed from her position on the Fed's seven-strong governing board over allegations of mortgage fraud. Cook has denied wrongdoing and said she would not resign, setting the stage for a legal battle over whether the president has the authority to fire a Fed governor. The dispute comes as Trump intensifies pressure on the central bank to deliver steep interest rate cuts to support the economy and the jobs market.
Investors sold US government bonds following Trump's remarks, sending yields on 30-year Treasuries up 0.06 percentage points to 4.92 per cent. The dollar slipped 0.15 per cent against a basket of major currencies and 0.13 per cent against sterling, falling to $1.35. Gold, a traditional safe haven, climbed 0.4 per cent to $3,388.60 an ounce, its highest since 11 August.
Lee Hardman, currency analyst at MUFG, said: "The relatively modest US dollar sell-off so far reflects in part uncertainty over whether President Trump's decision to fire Fed governor Cook will stand legally. It does though mark a significant step up in President Trump's attack on the Fed's independence, which could eventually trigger a much bigger sell-off for the US dollar."
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