The US dollar steadied on Tuesday after a volatile start to the session, following an unprecedented move by President Donald Trump to dismiss Federal Reserve board member Lisa Cook, reigniting concerns over the central bank’s independence.

The euro and British pound were little changed against the dollar at 1.1617 dollars and 1.3461 dollars respectively, in line with muted moves in other currencies such as the Japanese yen and Swiss franc.

The dollar index, which measures the US currency against six others, held at 98.42, recovering from a roughly 0.4% decline after Trump announced the dismissal in a letter to Cook published on social media.

The move marked a sharp escalation in Trump’s battle with the Fed, as he has repeatedly criticized Chair Jerome Powell for not cutting rates, though he has stopped short of threatening Powell’s removal with less than nine months left in his term.

Kenneth Broux, head of FX and rates research at Société Générale, said: “The story has been expected for a while,” referring to Trump’s ongoing pressure to reduce borrowing costs.

Trump justified his decision in the letter by citing allegations of “misconduct in obtaining mortgage loans.” But Cook responded that the president has no legal authority to dismiss her from the central bank, insisting she would not resign.

Markets are currently pricing in an 82% probability of a rate cut at the Fed’s September meeting. While investors may lean toward selling the dollar, persistent economic and financial concerns in Europe are limiting alternatives for betting against the US currency, according to Broux.

In Europe, French government bonds fell as the risk of a minority government collapse increased ahead of next month’s confidence vote, after opposition parties said they would not support Prime Minister François Bayrou’s budget-cutting plans. The 10-year government bond yield jumped about 4 basis points to 3.53%, its highest level since March.

ING analysts wrote in a note: “The broader question for the euro is whether the latest French news will shake investor appetite for the single currency as a whole, or remain an isolated French problem.”

In Asia, offshore Chinese yuan traded at 7.1635 per dollar, near its strongest level in a month, supported by gains in Chinese equities.

Cryptocurrencies remained volatile, with Bitcoin up 0.5% as it attempted to break a three-day losing streak, while Ether rose 1.5%.

Gold prices jumped in the European market on Tuesday to a two-week high, resuming gains after a temporary pause yesterday, moving close to trading above the psychological barrier of 3,400 dollars an ounce, supported by the current decline in the US dollar against a basket of global currencies.

US President Donald Trump announced the dismissal of Federal Reserve board member Lisa Cook over mortgage-related misconduct, in an unprecedented move that undermines confidence in the central bank’s independence and US assets.

Price Overview

Gold rose by 0.6% to 3,386.62 dollars, the highest since August 11, from the opening level of 3,365.95 dollars, recording a low of 3,351.42 dollars.

At Monday’s settlement, gold lost about 0.2% in a breather after strong gains late last week.

US Dollar

The dollar index fell on Tuesday by 0.35%, resuming losses after a temporary pause yesterday, moving once again near multi-week lows, reflecting renewed weakness of the US currency against a basket of major and minor peers.

The decline came amid accelerated selling after President Donald Trump announced the dismissal of a Federal Reserve board member, in an unprecedented move undermining the Fed’s independence and US assets.

Dismissal of Lisa Cook

President Donald Trump announced late Monday the dismissal of Lisa Cook from the Federal Reserve Board, citing allegations of mortgage-related misconduct.

Cook, the first African-American woman to serve as a Fed governor, had been set to remain in office until 2038.

Trump, who lacks the legal authority to dismiss Fed board members except “for cause,” backed away from his threat to fire Fed Chair Jerome Powell, whose term expires next May.

Cook’s departure could accelerate the president’s reshaping of the Federal Reserve Board and the Federal Open Market Committee (FOMC), which sets interest rates.

For her part, Lisa Cook said: Trump has no authority to dismiss me and I will continue to perform my duties. She added: there is no justification for dismissal and I will not resign.

Legally, Trump’s dismissal of Cook can be challenged in federal courts, and ultimately in the Supreme Court.

Congress had restricted the president’s unilateral authority to dismiss Fed governors under the Federal Reserve Act of 1913, which stipulates that the president may only do so “for cause.”

US Interest Rates

According to CME Group’s FedWatch tool: the pricing of a 25-basis-point US rate cut in September is currently steady at 85%, with the probability of holding rates unchanged at 15%.

The pricing of a 25-basis-point cut in October is steady at 92%, with the probability of no change at 8%.

To reprice these expectations, investors this week await important US economic data, particularly the Personal Consumption Expenditures report on Friday, along with a series of comments from Fed officials.

Outlook for Gold

Tim Waterer, chief market analyst at KCM Trade, said: Trump once again unsettled traders with his remarks regarding Fed member Cook, leading to additional safe-haven flows into gold today.

He added: there is a sense that Trump may reshape the Fed to become more inclined toward quantitative easing, and any decline in the dollar or in bond yields will likely impact gold.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose yesterday by 1.72 metric tons to 958.49 metric tons, rebounding from 956.77 metric tons, the lowest since August 6.

The euro rose in the European market on Tuesday against a basket of global currencies, resuming gains after pausing yesterday amid correction and profit-taking from a three-week high against the US dollar. The rise came on renewed concerns over US assets, particularly after Donald Trump announced the dismissal of a Federal Reserve board member.

Reports indicated that the European Central Bank is likely to keep interest rates unchanged next month, though discussions on monetary easing and further cuts could resume in the autumn if the eurozone economy weakens.

Price Overview

The euro rose against the dollar by 0.35% to 1.1660 dollars, from the opening level of 1.1618 dollars, recording a low of 1.1610 dollars.

The euro ended Monday down about 0.85% against the dollar, due to accelerated correction and profit-taking from a three-week high of 1.1743 dollars.

US Dollar

The dollar index fell on Tuesday by 0.35%, resuming losses after a temporary pause yesterday, moving once again near multi-week lows, reflecting renewed weakness of the US currency against a basket of major and minor counterparts.

The decline came after President Donald Trump announced the dismissal of a Federal Reserve board member, in an unprecedented move undermining confidence in the Fed’s independence and US assets.

Dismissal of Lisa Cook

President Donald Trump announced late Monday the dismissal of Lisa Cook from her position on the Federal Reserve Board, citing allegations of mortgage-related misconduct.

Trump, who lacks the legal authority to dismiss Fed board members except “for cause,” backed away from his threat to fire Fed Chair Jerome Powell, whose term expires next May.

Cook’s exit from the central bank could accelerate the president’s reshaping of the Federal Reserve Board and the Federal Open Market Committee (FOMC), which sets interest rates. Her term had been set to run until 2038.

For her part, Lisa Cook said: Trump has no authority to dismiss me and I will continue to perform my duties. She added: there is no justification for dismissal and I will not resign.

Legally, Trump’s dismissal of Cook can be challenged in federal courts, and ultimately in the Supreme Court.

Congress had restricted the president’s unilateral authority to dismiss Fed governors under the Federal Reserve Act of 1913, which states that the president may only do so “for cause.”

European Interest Rates

Five sources told Reuters that the European Central Bank is expected to keep rates unchanged next month, though discussions of further cuts could resume in the autumn if the eurozone economy weakens.

ECB President Christine Lagarde said on Saturday at Jackson Hole that the tightening policies adopted in 2022 and 2023 had not led to recession or a sharp rise in unemployment, as had historically been the case.

Money market pricing of a 25-basis-point ECB rate cut in September is currently steady below 30%.

To reprice these expectations, investors in the coming period are awaiting several key economic data releases from Europe, along with further remarks from ECB officials.

The Japanese yen rose broadly in the Asian market on Tuesday against a basket of global currencies, resuming strong gains against the US dollar, as safe-haven buying of the yen accelerated amid rising concerns over the stability of the Federal Reserve, the world’s largest central bank.

US President Donald Trump announced the dismissal of a Federal Reserve board member, in an unprecedented step that undermines confidence in the central bank’s independence and US assets.

Following more hawkish comments from Bank of Japan Governor Kazuo Ueda at the annual Jackson Hole Economic Symposium, expectations increased that the central bank will resume policy normalization soon. Investors are awaiting more new evidence on the path of Japanese interest rates for the remainder of this year.

Price Overview

The dollar fell against the yen by more than 0.5% to 146.99¥, from the opening level of 147.77¥, recording a high of 147.88¥.

The yen ended Monday down 0.6% against the dollar, giving up a large part of Friday’s gains following cautious comments by Fed Chairman Jerome Powell at Jackson Hole.

Dismissal of Lisa Cook

President Donald Trump announced late Monday the dismissal of Lisa Cook from her position on the Federal Reserve Board, citing allegations of misconduct related to mortgage loans.

The decision to dismiss a Federal Reserve board member is unprecedented and undermines confidence in the Fed’s independence and US assets.

Trump, who lacks the legal authority to dismiss Fed board members except “for cause,” backed away from his threat to fire Fed Chair Jerome Powell, whose term expires next May.

Cook’s departure from the central bank could accelerate the president’s reshaping of the Federal Reserve Board and the Federal Open Market Committee (FOMC), which sets interest rates. Her term had been set to run until 2038.

For her part, Lisa Cook said: Trump has no authority to dismiss me and I will continue to perform my duties. She added: there is no justification for dismissal and I will not resign.

Legally, Trump’s dismissal of Cook can be challenged in federal courts, and ultimately in the Supreme Court.

Congress had restricted the president’s power to unilaterally dismiss Fed governors under the Federal Reserve Act of 1913, which states that the president may only do so “for cause.”

Japanese Interest Rates

Bank of Japan Governor Kazuo Ueda said at Jackson Hole on Saturday that wage increases are extending beyond large companies, and are likely to continue accelerating due to tightening labor market conditions.

These remarks strengthened market expectations that the BOJ will resume rate hikes soon after pausing following January’s increase. Traders currently see a rate hike at the October meeting as likely.

The pricing of a 25-basis-point BOJ rate hike at the September meeting is currently steady at around 45%.

To reprice these expectations, investors are awaiting more data on inflation, unemployment, and wages in Japan.

Outlook for the Japanese Yen

Ho Min Lee, chief macro strategist at Lombard Odier, sees the yen strengthening to 140 per dollar over a 12-month horizon, but expects interest rates to remain in a narrow range in the near term.

He said: “We assume the next rate hike by the Bank of Japan will be in January next year, not October. The bank is likely to keep real interest rates deeply negative until the end of the year, and only then consider gradual increases.”