Trump axes Fed Governor Cook, dollar tumbles on FOMC uncertainty

• Fed Governor Lisa Cook removed by Trump, raising questions on central bank independence.
• Markets eye potential dovish shift in FOMC and faster policy easing.
• Dollar weakens vs euro and yen amid Fed credibility and tariff threats.

Summary

Trump’s abrupt removal of Fed Governor Lisa Cook has rattled markets in Asia, raising fresh questions over the Fed’s independence and the FOMC’s direction. With a potential dovish tilt in committee composition and faster-than-expected easing now a risk, the U.S. dollar has weakened against both the euro and yen. Adding to the pressure, Trump’s tariff threat on nations targeting U.S. tech has reinforced the bearish backdrop for the dollar. EUR/USD has bounced from support, while USD/JPY hovers above key technical levels, leaving both pairs poised for further moves if risk sentiment shifts.

Cook Sacked, Fed Independence Questioned

The White House issued a letter on August 25, 2025, signed by President Donald Trump and posted on Truth Social, removing Federal Reserve Governor Lisa Cook from the Board of Governors, effective immediately. The removal was made under Article II authority and the Federal Reserve Act, citing “sufficient cause” based on a criminal referral. The letter alleges Cook made false statements on mortgage applications, calling into question her integrity and competence as a financial regulator.

The abrupt dismissal of a sitting Fed Governor is unprecedented and could inject fresh uncertainty into the FOMC’s composition and decision-making. The move is likely to be challenged in the courts, raising doubts over its legality and intensifying concerns about central bank independence and political interference.

Beyond the legal fight, markets will also focus on the balance of power within the FOMC. With a majority of Governors able to influence appointments at regional Federal Reserve Banks, the removal—and eventual replacement—could lead to a meaningful dovish shift in the composition of the committee, likely quickening the pace of monetary policy easing beyond what markets have factored in.

Curves Steepen on Rate Cut Bets, Inflation Unease

For rates markets, this may add a risk premium, steepening the yield curve as investors reassess the Fed’s credibility and the implications for the U.S. inflation outlook. The U.S. 2s30s curve—which can be used to assess the impact that changes in monetary policy could have on long-term nominal economic growth along with perceived policy risks—has already steepened to cycle highs, rising more than 80bps above levels seen earlier this year.

Source: TradingView

Tariff Threat Delivers Double Dollar Drop

While higher yields would normally support the U.S. dollar, with concerns over the Fed’s independence from fiscal policymakers ramping up, the announcement has had the opposite effect with the dollar sinking against both the euro and Japanese yen.

The dollar is also not being helped by a separate announcement from Trump threatening additional tariffs on nations that impose digital taxes or regulations on U.S. technology firms. Via Truth Social, Trump warned of steep new tariffs and restrictions on access to American technology and chips. “America, and American Technology Companies, are neither the ‘piggy bank’ nor the ‘doormat’ of the World any longer. Show respect to America and our amazing Tech Companies or, consider the consequences!”, Trump posted.

As seen immediately after the Liberation Day tariff announcement in April, the dollar may resume its weakening trend, although it may not be as abrupt on this occasion given markets are now adapted to the so-called ‘TACO’ trade.

EUR/USD Bounces, Buying Dips Preferred

Source: TradingView

EUR/USD has bounced on Cook’s termination and the tariff threat, moving further away from support at 1.1600. Topside levels of note include resistance at 1.1720, 1.1788 and the July 1 swing high of 1.1832. While the signal from momentum indicators is neutral, fundamentally this backdrop favours buying dips and bullish breaks.

USD/JPY Bears Eye 50DMA Break

Source: TradingView

USD/JPY has seen the largest move in response to the headlines, losing close to 0.5% to sit just above a support zone consisting of 147.00 and the 50-day moving average. A sustained break beneath this zone may spark an unwind towards support at 146.00 or even 144.40. Like the euro, the yen may benefit from the rapidly shifting fundamental backdrop, especially if the moves spark deeper losses in risk assets that pressure carry trades.