EM stocks and currencies plunge as Trump ramps up Fed and trade pressure

Emerging markets plunged on Tuesday as President Donald Trump dialed up pressure on the Federal Reserve and reignited multiple trade fights at once.

The MSCI Emerging Markets Index fell by 0.9%, snapping a rally that had lifted it to levels not seen in over three years. Traders exited risk positions, especially in Asia, after Trump targeted technology exports, Fed leadership, and tariff policy all in the same breath.

The downturn was led by big names Alibaba Group Holding and Tencent Holdings, dropping sharply after Trump threatened new tariffs and export restrictions on semiconductors and other advanced technology linked to China.

Last night, Trump fired Federal Reserve Governor Lisa Cook, escalating his efforts to gain control over the U.S. central bank.

This came just weeks after Adriana Kugler stepped down, leaving one board seat vacant. The removal of Cook would shrink the Fed to five members. But if Trump installs Stephen Miran in the open seat and removes Cook, he’d control four of seven board votes.

Trump adds tariffs and pressures central bank at once

The pressure didn’t stop there. Trump is pushing forward with a 25% tariff on Indian imports tied to Russian oil transactions, set to begin Wednesday.

At the same time, South Korea is under U.S. pressure to uphold an earlier tariff agreement, which includes a 15% levy on South Korean goods and hundreds of billions of dollars in U.S. investments.

Despite President Lee Jae Myung personally raising the issue during his first meeting with Trump, no deal was struck to ease the burden.

The effect spread fast. The MSCI gauge for developing currencies dropped 0.3%, with the South Korean won and Taiwan’s dollar taking the hardest hits. Strategists at Credit Agricole, led by Sebastien Barbe, said in a note:

“While markets have started to pare optimism after the Jackson Hole symposium, Donald Trump’s announcement that he would remove Fed Governor Lisa Cook from her position has further suppressed risk sentiment in Asia today.”

Meanwhile, China responded differently. Beijing is sending a senior trade negotiator to the U.S., signaling that talks between the world’s two largest economies could resume after both sides paused their last major trade dispute. But beyond the gesture, no terms or timeline were made public.

Bond yields react as markets pull back

Back in Washington, Trump’s decision to move against Lisa Cook triggered a reaction in the bond market. The U.S. Treasury yield curve steepened. The 2-year yield dropped nearly 2 basis points to 3.71%, while the 10-year yield rose to 4.296%.

The 30-year yield increased even more, by 4 basis points, hitting 4.9%. Traders reacted quickly to the reshuffling threat at the Fed. And while prices and yields always move in opposite directions, the trend was clear: investors expect more long-term inflation risk or policy change.

The Fed board currently has six sitting members. Removing Lisa Cook would drop that to five, still with a majority of non-Trump appointees. But if Stephen Miran is confirmed and Fed Chair Jerome Powell steps down after his term ends in May, Trump could appoint a fifth member, giving him full voting control of the board.

Markets responded across the board. The Dow Jones Industrial Average futures fell 56 points (0.1%), while S&P 500 and Nasdaq-100 futures each dropped by 0.1%. The U.S. dollar index, which tracks the greenback against a mix of major global currencies, slipped by 0.2%.

Outside of the U.S., Hungary’s central bank, the National Bank of Hungary, held its main rate at 6.5% Tuesday, opting for currency stability over early easing. That level remains tied with Romania for the highest policy rate in the European Union.