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European stocks calm after French selloff

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Investors await pivotal Nvidia ( NVDA ) earnings after Fed drama

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Dollar recovers even as Fed independence worries linger

(Updates at 1210 GMT)

By Yoruk Bahceli and Ankur Banerjee

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 ).

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 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.

NVIDIA ( NVDA )

U.S. stock futures were trading around 0.1% higher.

The focus is turning to earnings from Nvidia ( NVDA ) later on

Wednesday, which will set the tone for how tech-concentrated

U.S. equity indexes, which have reached near record highs, will

trade.

The company has been at the forefront of a market recovery

from April's lows, crossing the $4 trillion market

capitalisation mark in July to become the world's most valuable

company as investors continued to bet on the global demand for

AI infrastructure.

Data showed options traders are pricing in about a $260

billion swing in Nvidia's ( NVDA ) market value after the firm reports

earnings, where its business in China will be watched after an

unusual profit-sharing deal with the Trump administration.

Caught in the crossfire of a Sino-U.S. trade war, the fate

of Nvidia's ( NVDA ) China business hangs on where the world's two

largest economies land on tariff talks and chip trade curbs.

In Asia, Japan's long-dated government bond yields rose to

fresh all-time highs following a weak result in the Bank of

Japan's regular debt purchase operations.

In commodities, spot gold was 0.5% lower after

touching a two-week high in the previous session.

Oil prices edged up, with the market on alert for fresh

developments in the war in Ukraine and investors weighing hefty

new U.S. tariffs on India, the world's third-biggest crude

consumer.

Both Brent crude and West Texas Intermediate crude

futures were up around 20 cents at $67.43 and $63.47

respectively.