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The average term of a central bank governor in Argentina during the 1980s was about a year. That is the sort of thing to be expected almost 40 years ago. It is not something that investors look for in a G7 country. But that was the talk in Washington at the weekend.  

The US president's antipathy to Federal Reserve chairman Jay Powell is well-known. Trump wants low interest rates to fuel the stock market and the chairman wants rates at a level appropriate for stable prices and full employment. Never the twain shall meet, and scarcely a day goes by without a complaining tweet about rising interest rates being Bad, Really Bad, or words to that effect.  

It was nevertheless a surprise to discover on Saturday that Trump had discussed with his advisors the possibility of firing Mr Powell. The idea did not go down at all well with investors. They worried that he was looking for a scapegoat and that the Fed chairman simply presented the most obvious target

Confidence

Friday's partial government shut-down, when the president refused to approve the budget because it included hardly any money for his wall, paled into insignificance at the side of the potential sacking of the Fed chief.  Rather than calming markets, the story did the opposite.

Logically, to sack the author of the rising interest rates which are allegedly at the nub of the equity sell-off would imply the appointment of a policy dove as his replacement. Less aggressive monetary policy would, the argument goes, allow share prices to resume their upward trend.  

But that is not the way investors think or, indeed, the way markets operate.  A meddlesome president throwing his weight around is not conducive to confidence. Witness the way they punished the Turkish lira in August when president Erdoğan went into bat on interest rates. Treasury secretary Steve Mnuchin has found it necessary to step into the fray in an attempt to calm markets.

Risk-aware

There was not a massive reaction in the Far East this morning. The safe-haven yen came out of it best, strengthening by an average of 0.9% against the major currencies, but the Swiss franc put in no more than an average performance even as sterling took second place.

Its looks very much as though seasonal illiquidity will put its own skew on exchange rates today. London will be closed from around midday and there will be little enthusiasm in New York to pick up the mantle.

For the moment, it looks as though the dysfunctional Washington administration is out-spooking Brexit as the bogey du jour. And the drama is playing out on possibly the quietest working day of the financial market year. There is a probability of some volatility and it may be a good idea to not pay too much attention to the size and direction of currency movements: when they take place in a thin market they can often go into reverse in an instant. 

GBP does well as White House chaos overshadows Brexit

GBP does well as White House chaos overshadows Brexit

USD unchanged as Trump considers sacking Fed chief

USD unchanged as Trump considers sacking Fed chief

JPY leads with its safe-haven credentials

JPY leads with its safe-haven credentials

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