FOREX-Dollar drops after Trump fires Fed's Cook

By Gregor Stuart Hunter

SINGAPORE, Aug 26 (Reuters) - The U.S. dollar surrendered gains in early trading in Asia on Tuesday after U.S. President Donald Trump said he was removing Federal Reserve Governor Lisa Cook from her position for allegedly committing mortgage fraud.

The dollar index =USD fell 0.3% to 98.187 after Trump made the announcement in a letter to Cook that he posted on social media. The pullback came after the U.S. currency had registered its biggest daily gain of the month on Monday.

"Markets aren’t panicking, but they are recalibrating, earlier rate cuts look more likely after Cook’s removal," said Charu Chanana, chief investment strategist at Saxo in Singapore.

"But this isn’t just about rate cuts, it’s about Fed independence and the growing institutional risks in the U.S."

Trump's unprecedented move marks a sharp escalation of the president’s battle against the Fed, which he blames for not lowering interest rates quickly, and intensifies investor worries about the U.S. central bank's independence.

The yield on the two-year U.S. Treasury bond fell 3.6 basis points to 3.694% after the move, while the yield on long-dated 30-year bonds rose 3.3 basis points to 4.922%.

"President Trump's removal of Federal Reserve Governor Lisa Cook, following his relentless pressure on Fed Chair Jerome Powell that saw the Fed Chair buckle last week, reignites questions around the Federal Reserve's independence and further undermines its ability to maintain impartial monetary policy free from political influence," said Tony Sycamore, a market analyst at IG in Sydney.

Against the yen, the dollar was traded at 147.18 yen JPY=EBS, 0.4% stronger compared to late U.S. levels.

The euro tacked on 0.2% in Asia, last fetching $1.1650 EUR=EBS, reversing declines after France's three main opposition parties said they would not back a confidence vote which Prime Minister Francois Bayrou announced for September 8 over his plans for sweeping budget cuts, increasing the probability that the country's minority government will be ousted next month.

Sterling traded at $1.3483 GBP=D3, up 0.2% so far on the day.

The offshore yuan changed hands at 7.1527 yuan per dollar CNH=, up about 0.2% and trading near the strongest level in a month, as a rally in the Chinese stock market gathers steam, with the Shanghai Composite hitting the highest levels in a decade on Monday.

The Australian dollar fetched $0.64915 AUD=D3, up 0.15% in early trade, ahead of the release of the Reserve Bank of Australia's minutes for its August meeting. The kiwi traded 0.1% stronger at $0.5856 NZD=D3.

Cryptocurrencies fluctuated between gains and losses after several days of choppy trading, with bitcoin BTC= last down 0.2%, on track for four consecutive days of losses, while ether ETH= was off 0.1%.