Market News
Dollar recovers despite Fed independence jitters; European stocks calm after French selloff
By Yoruk Bahceli and Ankur Banerjee
Summary
- European stocks calm after French selloff
- Investors await pivotal Nvidia earnings after Fed drama
- Dollar recovers even as Fed independence worries linger
LONDON/SINGAPORE, Aug 27 (Reuters) - The U.S. dollar recovered on Wednesday even as investors worried about attacks on Federal Reserve independence, while European shares edged higher after a sharp drop the day before, with the focus now turning to earnings from AI leader Nvidia (NVDA.O). Concerns for U.S. Federal Reserve independence swirled as a lawyer for Fed Governor Lisa Cook said she would file a lawsuit against President Donald Trump's move to fire her on Monday.
Even so, the dollar rebounded from its drop in the previous session and was up 0.3% against a basket of currencies at 1210 GMT.
"If you think about near-term policy and the impact, despite thinking that inflation can become unanchored when you have a less independent central bank, Cook has been dovish overall," said Justin Onuekwusi, chief investment officer at St. James's Place.
"I think what concerns markets overall is the persistent rhetoric on the Fed that can put the future independence of the central bank into question," said Onuekwusi, adding that markets appeared complacent about the attendant risks to policymaking.
The two-year U.S. Treasury yield , which typically moves in step with interest rate expectations, hit its lowest since May at 3.645%.
But the yield on the 30-year bond , which bore the brunt of Tuesday's selloff, rose 2 basis points to 4.93%.
Those moves widened the yield curve measured by the gap between two and 30-year yields further to around 128 bps, nearing its widest since early 2022 .
Trump has repeatedly criticised Fed Chair Jerome Powell and policymakers for not cutting interest rates. Market watchers interpreted Powell's comments at the Fed's annual Jackson Hole symposium last week as indicating cuts could be on the way.
That has led to investors raising their bets on a rate cut next month, with traders pricing in an 84% chance of the Fed moving in September and expecting more than 100 bps of easing by June 2026.
"I think investors are focused more on the upcoming payroll print and what that means for a September rate move," said Ben Bennett, APAC investment strategist at Legal and General Investment Management. Europe's STOXX 600 index was trading 0.2% higher after a nearly 1% drop on Tuesday, when French Prime Minister Francois Bayrou's gamble to win backing for his deeply unpopular debt-reduction plan backfired. Bayrou's move to call a confidence vote on September 8 has raised the risk that the euro zone's second-largest economy could soon face another government collapse. However, French bonds calmed and stocks rose (.FCHI) following a sharp selloff on Monday and Tuesday. "What is key is whether or not we will be able to have a budget by the end of the year," said AXA chief economist Gilles Moec. For the time being, markets were pricing in a repeat of last year, when the French government ultimately pushed through a budget, but market reaction could change if a new snap election was called, he added. The euro and sterling dropped against a stronger dollar, with the euro falling to $1.1574, its lowest since August 6.
Reporting Yoruk Bahceli and Ankur Banerjee. Additional reporting by Dhara Ranasinghe. Editing by Mark Heinrich and Mark Potter
