Trump's Fed Shake-Up Sparks Market Turbulence

Donald Trump's controversial move to dismiss Federal Reserve Governor Lisa Cook has triggered market fluctuations, raising apprehensions regarding the Fed's independence. This initiative by the former president could ignite a lengthy legal struggle, potentially altering norms surrounding the U.S. central bank's autonomy and governmental influence on monetary strategies.

As shorter-dated U.S. Treasury yields fell, inflation fears emerged due to the anticipation of a more lenient Fed policy, which might intensify under Trump's influence. The implication of such political meddling could jeopardize the Fed's credibility and impact foreign interest in U.S. debt. European markets also felt the tremors, with France's political instability dragging shares down.

Despite these complexities, U.S. stocks saw slight gains, with eyes on Nvidia's upcoming earnings and an important inflation report. As Morgan Stanley predicts a possible interest cut in September, stirred by hints from Fed Chair Powell, commodity markets reacted, showing declines in oil prices and an uptick in gold. The dollar, meanwhile, weakened against major currencies.

(With inputs from agencies.)