Impact of Dollar’s Decline: What Trump’s Attacks on the Fed Mean for Your Investments in Oman
طوكيو – The dollar and longer-term U.S. Treasuries experienced a decline on Tuesday following President Donald Trump’s announcement of the dismissal of a Federal Reserve governor, a move that raises concerns about the Fed’s independence and the reliability of U.S. assets.
The U.S. dollar fell against the euro after Trump revealed his decision to remove Lisa Cook from her position on the Federal Reserve’s board of directors, citing allegations regarding inappropriate conduct in connection with mortgage loans. This decision intensifies the president’s ongoing conflict with the central bank.
Asian stock markets mirrored the downward trend observed on Wall Street, as uncertainty about future Fed policy and the potential for a rate cut next month loomed large. Gold prices climbed to a two-week high, while U.S. equity futures also showed declines amid Trump’s renewed threats of tariffs against trade partners.
Bart Wakabayashi, Tokyo Branch Manager at State Street, commented, "All of this, including tariffs, is just another reason the U.S. can’t be trusted. There’s no credibility. That’s the foundation of the U.S. being regarded as the safest investment globally. If you’re a responsible investor, it gives you pause."
The euro increased by 0.1% to $1.1631. The yen remained stable at 147.82 per dollar, despite earlier surging more than 0.5%.
The dollar index, which measures the greenback against a range of currencies, retreated by 0.1% following a 0.7% gain the previous day. The yield on the benchmark U.S. 10-year Treasury note rose by 3.1 basis points to 4.306%, while the yield on the 30-year bond increased by 4.7 basis points to 4.936%. Conversely, the two-year Treasury yield, which closely aligns with Fed interest rate expectations, fell by 1.3 basis points to 3.717%.
Trump has frequently threatened to dismiss Fed Chair Jerome Powell. Just earlier this month, he terminated a senior Labor Department official, alleging, without evidence, that she had manipulated employment data to his disfavor.
In a letter addressing her dismissal, Trump stated, "I have determined that there is sufficient cause to remove you from your position," claiming there was ample evidence that Cook had made false statements on mortgage applications. Although Trump lacks the legal authority to remove the Fed chair without specific grounds, he has moderated his threats as Powell approaches the expiration of his term next May.
Cook’s departure from the central bank may accelerate Trump’s efforts to reshape the Fed and the Federal Open Market Committee (FOMC), with her term originally set to end in 2038. According to OCBC currency strategist Christopher Wong, "This move raises concerns over Fed independence, impacting the dollar and the future composition of the FOMC, contributing to expectations for a rate cut and a softer dollar outlook."
The MSCI Asia-Pacific index, excluding Japan, fell by 0.5% after U.S. stocks ended the previous session with modest losses. Japan’s Nikkei index dropped by 0.9%.
Futures markets indicate a cautious outlook for trading in Europe and the U.S. Euro Stoxx 50 futures fell by 0.53%, German DAX futures decreased by 0.45%, and FTSE futures declined by 0.35%. The U.S. S&P 500 e-minis dropped by 0.07%.
Leading brokerages such as Barclays, BNP Paribas, and Deutsche Bank now anticipate a 25-basis-point rate cut from the Fed in September. According to the CME Group’s FedWatch Tool, traders are pricing in an 83% probability of this cut.
Data set for release in August, prior to the Fed’s meeting on September 16-17, could influence policy decisions. The upcoming U.S. personal consumption price data, regarded as the Fed’s preferred inflation measure, is expected on Friday. Recent hotter-than-anticipated producer price data raised questions about the likelihood of a rate cut.
Meanwhile, extending months of uncertainty surrounding tariff policies, Trump also warned of "subsequent additional" import duties on countries imposing digital taxes.
U.S. crude prices decreased by 0.5% to $64.48 per barrel, while gold prices rose by 0.2% to $3,373.32 per ounce, having reached a peak of $3,386.27, the highest since August 11.
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The recent upheaval in U.S. monetary policy, marked by President Trump’s dismissal of a Federal Reserve governor, signals increased volatility that could ripple through global markets, affecting investor confidence. For businesses in Oman, this could mean tapping into emerging opportunities in alternative currencies and commodities, especially as the dollar weakens. Entrepreneurs should closely monitor these trends and consider diversifying investments to hedge against potential risks associated with fluctuating international economic conditions.
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