Concerns over Fed Independence Shake Markets: U.S. Stocks, Bonds, and Dollar Fall, Gold Rises

Asian Markets in China, Japan, and Korea Also End Lower

European Stocks Weaken Amid French Political Turmoil

After President Donald Trump announced the dismissal of Federal Reserve Board member Lisa Cook, U.S. long-term Treasury bonds and stock futures fell. The dollar also wavered. This unprecedented action by a U.S. president to remove a Fed board member raised significant concerns about the central bank’s independence.

On the 26th (local time), during early London trading, the benchmark 10-year U.S. Treasury yield rose by 2.5 basis points (1bp=0.01%) to 4.30%, and the 30-year yield increased by 5bp to 4.94%.

U.S. stock futures fell for the second consecutive day. S&P 500 and Nasdaq 100 futures each dropped by 0.1%. Dow Jones Industrial Average futures declined by 0.2%. Heightened risk sentiment pushed gold up by 0.4%, while the dollar fell as much as 0.3% before trimming losses.

Late the previous night, President Trump stated that he would dismiss Fed board member Lisa Cook, citing allegations of improper conduct during the mortgage lending process. Cook responded, "I am absolutely not willing to be threatened to resign."

Asian markets declined due to the previous U.S. market weakness and new tariff threats from Trump.

Japan's Nikkei Index closed down by 0.97%. The Shanghai Composite Index in China fell 0.39%, and Hong Kong’s Hang Seng Index lost 1.18%. Korea’s KOSPI dropped 0.9% that day, despite President Trump mentioning “purchases of Korean ships.”

The MSCI Asia Pacific Index declined by 1%, and the MSCI Emerging Markets Index dropped by 0.8%.

Christopher Wong, currency strategist at OCBC, noted, "Concerns over the Fed's independence are weighing on the dollar and will impact the future composition of the FOMC." He added, "This will further strengthen expectations for rate cuts and a weaker dollar."

Tim Graf, head of macroeconomic strategy at State Street, said, "Institutional investors are again selling the dollar in large volumes and increasing their holdings of euros."

In Europe, French political turmoil has led to sharp declines in French stocks and a broad downturn across European markets. After Prime Minister François Bayrou proposed a confidence vote that could topple the current government as early as next month, France’s CAC 40 index fell by 2% and the Stoxx 600 index for Europe declined by 0.7%.

Contributing journalist Jeong-ah Kim kja@hankyung.com