Trump Fires Fed Governor; Markets Fall on Independence Concerns

The Euro retreated nearly 1% against the US Dollar on Monday as traders booked profits following dovish comments from Federal Reserve Chair Jerome Powell at Jackson Hole, where he suggested the Fed remains open to easing but stressed the need for confirmation from upcoming economic data.

According to CME’s FedWatch Tool, markets still assign an 86% probability of a September rate cut. However, the timing could shift if incoming inflation and labor market data show renewed strength. Key reports in focus include July’s Core PCE Price Index, August CPI, and Nonfarm Payrolls.

In Europe, Germany’s IFO Business Climate index rose to 89 in August, its highest since May 2024, suggesting a tentative recovery. Still, IFO President Clemens Fuest cautioned that overall momentum remains weak.

On the US side, housing data showed new home sales slipped 0.6% in July to 652K, following an upward revision in June. Fed officials also struck cautious tones: St. Louis Fed President Alberto Musalem said more evidence is needed before backing a September cut, warning inflation remains closer to 3% than the Fed’s 2% target.

Still, divergence between the Fed and ECB remains a key driver for EUR/USD. While the ECB is widely expected to keep rates steady at its next meeting—with a 94% probability priced in—markets continue to bet on Fed easing, though the odds of a September cut have narrowed.

Bitcoin dropped to a seven-week low on Monday as risk appetite weakened following US President Donald Trump’s unprecedented dismissal of Federal Reserve Governor Lisa Cook, a move that has intensified concerns over the central bank’s independence.

The cryptocurrency has now fallen nearly 12% from its August record high above $124,000, erasing much of the rally that was driven by expectations the Fed would soon pivot toward rate cuts.

Trump announced on Monday that he had fired Cook, accusing her of mortgage fraud linked to 2021 loan documents. The Federal Housing Finance Agency referred the allegations to the Justice Department, though Cook has strongly denied them, calling her removal unlawful and warning that it undermines the Fed’s political independence, according to the Washington Post.

The rare ousting of a sitting Fed governor rattled investors and raised fears of political interference in monetary policy, particularly after weeks of Trump’s public criticism of Fed Chair Jerome Powell and his calls for deeper interest-rate cuts. Digital assets such as Bitcoin are especially sensitive to changes in US interest-rate expectations, as lower borrowing costs typically boost demand for speculative assets, while uncertainty can weigh heavily on sentiment. The broader cryptocurrency market followed Bitcoin lower in a broad-based sell-off.

Oil prices rose nearly 2% on Monday, building on last week’s rally as traders positioned for potential US sanctions on Russian crude and further disruption from Ukrainian strikes on Russian energy infrastructure.

The US is seeking to broker a peace deal between Russia and Ukraine to end the three-and-a-half-year conflict, but markets are growing doubtful about the pace of negotiations.

President Donald Trump reiterated on Friday that he would impose sanctions on Russia if no progress is made within two weeks. He also warned that India could face steep tariffs over its purchases of Russian crude. Over the weekend, US Vice President JD Vance noted that Russia had made “significant concessions” toward a settlement, though Ukraine has escalated drone attacks on Russian oil infrastructure.

Ukrainian drone strikes ignited a major fire at Russia’s Ust-Luga fuel terminal, while a separate blaze at the Novoshakhtinsk refinery burned for a fourth day, threatening fuel exports. However, concerns over supply disruptions are being offset by OPEC+’s move to unwind production cuts, with the group expected to approve further output increases at its September 7 meeting.

Market sentiment also found support after Federal Reserve Chair Jerome Powell signaled on Friday that the central bank could cut rates as early as its September meeting.

The US 500 closed lower on Monday, though strength in Nvidia helped soften losses as investors looked ahead to the chipmaker’s highly anticipated earnings later this week.

Nvidia Corp. outperformed broader markets, leading the tech sector higher ahead of its quarterly report due Wednesday after the bell.

Investor sentiment remains upbeat, with expectations that Nvidia will top forecasts and provide strong guidance. Optimism has been fueled by robust demand trends and a potential rebound in China-related sales following the easing of restrictions on H20 chip exports.

Intel, however, surrendered earlier gains after warning its international business could be hit by the U.S. government’s plan to take a 9.9% stake in the company. The chipmaker cautioned in a regulatory filing that government ownership could expose it to new regulations or restrictions abroad.

Apple Inc. edged higher after Bloomberg reported the company is embarking on a three-year initiative to redesign both the hardware and software of the iPhone.

U.S. Treasury yields extended last week’s gains as markets continued to price in a potential rate cut in September. The move comes after Federal Reserve Chair Jerome Powell suggested at the Jackson Hole symposium that easing could be warranted, citing risks to the labor market.

Investors will look for additional clues this week from multiple Fed speakers as well as fresh inflation data set for release on Friday.