Market sentiment remained uncertain early Tuesday as optimism over the extended U.S.-China tariff truce was offset by geopolitical tensions, concerns about the Federal Reserve’s independence, and caution ahead of the U.S. Consumer Price Index (CPI) for July. This cautious environment helped the U.S. Dollar to edge higher before a slight pullback, putting pressure on riskier assets, including equities, cryptocurrencies, commodities, and currencies like the Australian Dollar (AUD).
The AUD, often seen as a risk barometer, faced added pressure from a rate cut by the Reserve Bank of Australia, extending its losing streak to three days. Support for commodity-linked currencies such as the AUD, NZD, and CAD came from China’s new measures to boost consumer and service-sector loans, as well as the continuation of the U.S.-China tariff truce, but failed to inspire the bulls. These developments also helped Asia-Pacific equities rise, despite losses on Wall Street.
Meanwhile, U.S. President Donald Trump mentioned progress in Ukraine-Russia peace talks ahead of his upcoming meeting with Russian President Vladimir Putin. He described the meeting as a "feel-out" session aimed at eventually bringing Putin and Ukrainian President Zelenskiy together for a truce. However, Russia’s refusal to relinquish control over occupied Ukrainian territories and its demand for Ukraine to abandon those regions complicates the peace process, making the path to a ceasefire more difficult.
Concerns over the independence of U.S. regulatory institutions, especially the Federal Reserve, intensified after Trump fired the Commissioner of the Bureau of Labor Statistics (BLS) over revisions in job reports. He then appointed EJ Antoni, an economist without a statistical background, to lead the BLS, raising questions about credibility and weighing on the U.S. dollar’s early gains. Trump also addressed recent confusion about gold tariffs, clarifying that gold would not be subject to new U.S. tariffs and accusing media outlets of spreading misleading information.
Elsewhere, Australia saw an improvement in business confidence, though business conditions weakened slightly. In the UK, retail sales growth slowed in July according to data from the British Retail Consortium and Barclays, though overall spending rose 1.4% following a 0.1% drop in June.
Against this backdrop, the U.S. Dollar Index (DXY) paused after a two-day rally. Gold began recovering after its biggest single-day drop in three months. The AUDUSD drops for three straight days. EURUSD and GBPUSD both edged higher, with the British pound rising despite a mixed UK jobs report. USDJPY climbed for a third straight day. NZDUSD continued its decline for the third consecutive session, while USDCAD moved sideways as oil prices bounced back from a two-month low after seven days of losses. Cryptocurrencies slipped following Monday’s spike but regained some momentum in line with slightly firmer equities. Bond yields also showed mild gains.
EURUSD posted its first daily gain in three days, helped by a softer U.S. Dollar and optimism over potential U.S. tariff cuts on the EU. GBPUSD also rebounded, reversing Monday’s pullback from a two-week high, despite mixed UK jobs data and talk of more rate cuts from the Bank of England. The British Pound likely drew support from upbeat retail and spending data from BRC and Barclays, as well as the U.S. Dollar’s pullback.
USDJPY extended its gains for a third day, hitting a weekly high as Japanese markets reopened after a long weekend. The Yen's weakness, despite the dollar’s dip, may reflect easing fears over BoJ’s hawkish stance, uncertainty around U.S.-Japan trade talks, and market consolidation ahead of the U.S. CPI release.
AUDUSD saw a volatile session as it initially fell on the RBA’s 0.25% rate cut, rebounded briefly, but eventually closed lower, marking a three-day losing streak. The RBA’s move clashed with upbeat NAB Business Confidence and Conditions data, while the US Dollar’s weakness added to the choppy trading for the Aussie.
NZDUSD extended its decline for a third straight day, unable to benefit from the weaker US Dollar or positive China-related news. Meanwhile, USDCAD traded flat after a three-day rally, as a rebound in crude oil, Canada’s major export, was offset by uncertainty over the U.S.-Canada trade deal and a dovish outlook for the Bank of Canada.
Gold posted modest gains while stabilizing after its biggest daily loss in three months, supported by a softer US Dollar and clarity over U.S. tariffs on gold bars. Hopes from China’s stimulus and the U.S.-China tariff truce also helped limit bullion’s losses.
Crude Oil held onto its rebound from a two-month low, following a seven-day losing streak, as traders remained cautious amid rising geopolitical tensions and expectations of a U.S. inventory draw. However, worries over a possible OPEC+ output hike, trade war-related demand concerns, and Trump’s push for more oil drilling limited further gains.
Bitcoin stayed muted after pulling back from a monthly high, while Ethereum bounced back after two days of losses and hovered near its highest level since December 2021. Growing optimism from pro-crypto policies under the Trump administration and buying by crypto firms supported sentiment, but strong technical resistance and pre-CPI caution kept buyers in check.
After a volatile start triggered by the RBA rate cut and UK jobs data, market focus shifts to Germany and Eurozone ZEW sentiment reports, followed by the key U.S. CPI and Core CPI data for July. Also on the radar is the weekly U.S. oil inventory report from the American Petroleum Institute (API).
Expectations of softer U.S. inflation may weigh on the U.S. Dollar and boost risk assets like the Australian Dollar. However, any surprise in the data could spark sharp market reactions, especially when some Fed officials, including Chair Jerome Powell, stick to a data-driven stance despite Trump’s push for rate cuts. If goods inflation remains subdued, it may strengthen the Fed’s dovish side, particularly as tariff effects stay limited and attention turns to slowing U.S. job growth.
This backdrop could put additional pressure on the Greenback and lift overall market sentiment. Traders should also keep an eye on geopolitical headlines, including developments around U.S. tariffs, and tensions involving Russia, China, Ukraine, and Israel, for further direction.
May the trading luck be with you!
