On Monday, the U.S. Dollar (USD) consolidated after a significant drop on Friday, which was driven by Federal Reserve Chair Jerome Powell’s cautious speech at Jackson Hole. The Greenback's bounce was supported by mixed U.S. data, as traders reassessed the likelihood of Fed rate cuts beyond September. Powell's comments about data-dependency raised doubts about further cuts, which helped defend the USD. Further, U.S. President Donald Trump’s comments also affected market sentiment and allowed the Dollar to recover.
However, Trump’s firing of Fed Governor Lisa Cook, over alleged mortgage fraud, sparked political backlash and raised concerns about the Fed’s independence. This weakened the USD further. Trump also made headlines by shifting his stance on Ukraine, saying the U.S. wouldn’t spend any more money on Ukraine and would focus on NATO instead. He also expressed a desire to end the war in Ukraine and noted that Putin refuses to meet with Zelensky due to personal animosity.
Trump also commented on the situation in Gaza, saying it would be resolved soon, without Hamas, and within the next 2-3 weeks. He criticized the European Union's digital taxes and expressed concern over tariffs and visa sanctions. Trump mentioned that China’s President Xi had invited him to visit, but warned of a potential 200% tariff on China if they didn’t comply with U.S. demands.
On the economic front, Trump praised his effort to acquire a 10% stake in Intel, citing government funding from the CHIPS Act. White House official Kevin Hassett suggested the government might invest in more companies. Meanwhile, political tensions in France grew as the PM called for a confidence vote over budget cuts.
In economic data, Japan's Services PPI eased, while the UK saw its highest shop price jump since March 2024, raising concerns about inflation. The Reserve Bank of Australia’s (RBA) meeting minutes were less hawkish than expected.
Amid this, the U.S. Dollar Index (DXY) retreated after a strong start, while Gold hit a two-week high. Crude oil paused its four-day winning streak at a two-week high, as traders awaited U.S. API crude oil inventory data. EURUSD reversed its Friday gains but bounced back early Tuesday. GBPUSD remained flat after a weak Monday, while USDJPY struggled due to mixed data from Japan. AUDUSD and NZDUSD fell, while USDCAD was directionless, with crude oil's pullback weighing on the Canadian Dollar.
Stocks closed lower, and cryptocurrencies dropped sharply, before recovering slightly on Tuesday, as markets consolidated ahead of key data and mixed geopolitical/trade news.
Despite the U.S. Dollar's pullback, major currencies struggle to recover Monday’s losses due to mixed factors. In Europe, concerns about a potential French government collapse if the confidence vote on September 8 fails, along with Trump’s new tariff threats on the EU and weak German IFO sentiment data for August, put pressure on EURUSD.
In the UK, GBP/USD couldn’t take advantage of the highest shop price index since March 2004, following last week's strong inflation data. The Bank of England Governor highlighted employment and growth concerns, leading to doubts about rate cuts. This leaves GBPUSD in a tough spot after a sharp drop on Monday, reversing Friday's gains.
Meanwhile, USDJPY struggles to maintain its haven appeal due to mixed concerns about the Bank of Japan and Japan’s soft Services PPI for July. Additionally, worries about rising unemployment and stalled growth in Japan are adding pressure on the Yen.
AUDUSD and NZDUSD continue to fall for the second straight day, reflecting their risk-sensitive status. The Aussie faces extra pressure from the Reserve Bank of Australia’s less hawkish minutes and concerns over China’s trade and political situation. Similarly, the Kiwi is weighed down by these issues.
USDCAD, after rising on Monday, remains directionless. It’s influenced by falling crude oil prices, fears of a U.S.-Canada trade conflict, and a dovish Bank of Canada stance, making it challenging for traders, especially with a light economic calendar ahead.
WTI Crude Oil prints mild intraday losses, the first in five days, at the highest level in two weeks, as traders prepare for the API’s weekly U.S. inventory data. Also testing the crude oil buyers could be mixed headlines surrounding Russia and Gaza, as well as fears that Trump’s latest trade and political moves could weigh on the energy demand even if OPEC doesn’t feel it for 2025. That said, the OPEC+ supply increase and hopes that Russia is close to getting its sanctions removed, if the Ukraine deal succeeds, which could test oil buyers.
Gold rises to a two-week high, testing a month-old resistance, as traders flock to the safe-haven asset amid uncertain trade and political news. The softer U.S. Dollar and reports that China, a major gold consumer, will roll out stimulus and trade deals, are boosting hopes among gold buyers.
Meanwhile, Bitcoin (BTC) and Ethereum (ETH) suffered sharp losses on Monday due to concerns over the U.S. Dollar’s performance and a dip in institutional demand after months of strong inflows. BTC hit a seven-week low, while ETH saw its biggest daily drop since April 10, before bouncing back on Tuesday.
Looking ahead, key economic data, including U.S. Durable Goods Orders, Consumer Confidence, and the Richmond Fed Manufacturing Index, will shape Tuesday’s market outlook, alongside a speech from Bank of Canada Governor Tiff Macklem. However, the focus will remain on the Fed's response to Trump’s firing of Lisa Cook and ongoing geopolitical tensions surrounding Ukraine, tariffs, and Gaza. Additionally, the U.S. API Crude Oil Inventories data will draw attention after last week’s drawdown of 2.4 million.
Risk appetite is likely to stay subdued amidst these uncertainties. Strong U.S. data could intensify doubts about future Fed rate cuts, potentially boosting the U.S. Dollar and pressuring commodities like Crude Oil, equities, and cryptocurrencies. However, gold may continue its upward momentum if it manages to break and hold above the $3,385 resistance level, positioning it as a key beneficiary of market volatility.
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