Fed’s independence under attack again as Trump wants to oust Lisa CookDollar skids but later recovers, US yield curve steepens slightly, gold edges upStocks turn negative as Fed rally fades, PCE inflation awaitedEuro slips as French government at risk of collapseFed Legal Battle Looms as Trump Says He’s Fired CookPresident Trump turned his threat to fire Fed Governor Lisa Cook into action on Monday, posting the letter of her removal on his social media platform, Truth Social. Citing “sufficient cause”, Trump has seemingly fired Cook for allegedly falsifying mortgage documents.After failing to exert control over the Fed either by ousting Chair Powell or influencing his decisions, Trump appears to have turned his attention on reshaping the Board of Governors. Following the unexpected departure of Adriana Kugler and her replacement by Trump-nominee Stephen Miran, another new opening on the seven-member Board would allow Trump to appoint a fourth dovish governor, significantly shifting the balance within the decision-making body in his favour.Trump is seeing an opportunity to influence the Fed from the inside and is relentless in his approach. However, it’s unclear whether Trump’s claims about Cook can be substantiated and the governor, who was appointed by former President Biden in 2022, is not willing to go without a fight and is questioning Trump’s authority to fire her.This potentially sets up a messy legal battle between the Fed and the White House. Though, even if Cook has a strong legal case to defend herself, she might not be able to serve on the Board until a final court ruling has been issued. But more crucially, the Fed’s independence is once again being threatened, and this is unsettling the markets this morning.Dollar Rebounds From Lows, Bond Markets on AlertThe US dollar dipped in early Asian trading when the news broke out and Wall Street futures also fell, while the safe-haven gold spiked higher. But doubts about the legality of Trump’s move is likely keeping the market reaction in check for now, as the dollar has mostly recouped its losses. The immediate risk is the impact on the US yield curve, as long-dated yields are edging higher while short-term yields are down slightly.What President Trump doesn’t seem to realise is that undermining the Fed’s independence and damaging its credibility is more likely to push long-term yields higher than lower, raising borrowing costs for the government, even if interest rates are cut on the back of a leadership change.Bond markets can be unforgiving to political mismanagement and Trump may learn this the hard way if he presses on with always getting his way. Euro, French Bonds Rattled by Fresh Political RiskBond traders are certainly having their say today in France, where the 10-year government yield jumped to the highest since March, widening the spread with German yields, after Prime Minister Francois Bayrou called for a confidence vote on September 8 when parliament has to decide on deep budget cuts.France has one of the largest budget deficits in the Eurozone, but President Macron’s minority government has been struggling to pass much-needed reforms amid the lack of support by other parties.The euro came under slight pressure earlier today and remains down against the pound and Japanese yen, but it has regained some footing against the dollar.The Australian dollar is also underperforming somewhat on Tuesday following the publication of the minutes of the RBA’s August policy meeting, which hinted at further rate cuts ahead.In the bigger picture, most major FX pairs are trading in narrow ranges, and it will likely stay that way until Friday when the latest PCE inflation numbers out of the US should offer some clues as to the likelihood of additional rate cuts after September.Equities Turn RedFor equity markets, however, the next direction will come much sooner as Nvidia (NASDAQ:NVDA) is due to report its Q2 earnings tomorrow. Given that investors are once again questioning all the spending on AI and Nvidia’s ongoing headaches of trying to sell to China, tech stocks will likely be sensitive to the slightest disappointment.Wall Street’s main indices ended yesterday’s session in the red and stock markets globally are also struggling today, as the initial excitement from Powell’s dovish pivot at Jackson Hole faded quickly. Trump’s latest rant of threatening additional tariffs on countries with a digital tax is not helping sentiment either.