Market sentiment follows the usual inaction pattern ahead of the all-important Federal Open Market Committee (FOMC) monetary policy announcements, especially after the recent U.S. data came in positive. Also contributing to the anxiety were mixed trade and geopolitical news, as well as uncertainty surrounding the US-China trade deal framework on TikTok. This allows the financial markets to pare the previous moves against the U.S. Dollar, amid fears that the Fed might surprise the markets even after meeting the most consensus.
Talking about the U.S. data, Retail Sales for August showed solid growth, with an upward revision of 0.6% month-over-month (MoM), outpacing the anticipated 0.2%. The year-over-year (YoY) growth surged to 5.0%, up from the previous 4.1%, which was revised from 3.9%. Core Retail Sales, excluding automobiles, grew by 0.7% MoM, surpassing expectations of a 0.4% increase, which had been revised from 0.3%. Meanwhile, the broader Retail Sales Control Group, which is a key indicator of overall spending, also saw a rise of 0.7%, exceeding analyst predictions of 0.4% and prior figures of 0.5%. Industrial production, though modest, grew by 0.1% MoM, defying the forecasted 0.1% decline and reversing a previous drop of 0.4%. The Atlanta Fed's latest GDP growth forecast for the third quarter (Q3) stands at 3.4%, higher than the previously anticipated 3.1%.
In global news, U.S. President Donald Trump emphasized the need for the Federal Reserve to maintain its independence as he signed documents related to appointing Stephen Miran as Fed Governor, till January.
Meanwhile, European Commission President Ursula von der Leyen had a discussion with Trump regarding joint efforts to increase economic pressure on Russia, including further measures to phase out Russian fossil fuel imports. Trump also mentioned that Ukraine's President Zelenskyy should negotiate a peace deal to end the war, and indicated that he might need to intervene in negotiations between the warring nations.
On the matter of TikTok, the White House has once again extended the deadline for Oracle to finalize its acquisition of the app, pushing it to December 18. Despite this, the framework for the deal has largely been established. Oracle is expected to take over the U.S. operations, with Beijing retaining a 20% stake in the business. Shares of Oracle have seen fluctuations, but remain positive, albeit below their peak intraday values.
In China, the upcoming Golden Week holiday, October 01-10, is expected to trigger a strong demand for domestic and international travel, providing a much-needed boost to consumer spending. To support this, the Chinese government has unveiled a set of new measures to stimulate services consumption, particularly in sectors such as healthcare, culture, and education. This initiative aims to attract foreign and private investments to support long-term economic recovery.
However, China’s tightening control over rare-earth exports is creating challenges for international businesses. The European Chamber of Commerce in China has reported that some companies have suffered significant financial losses due to delays and uncertainties surrounding export licenses.
Japan’s export sector faced another decline in August, though the drop was less severe than expected. Exports to the U.S. fell by 13.8% year-on-year, marking the largest decline since early 2021. The ongoing weakness in Japan’s export market raises concerns over the nation's economic outlook and reinforces the expectation that the Bank of Japan (BOJ) will continue to maintain a cautious stance on tightening monetary policy.
In a shift toward more direct investments, Japan’s Government Pension Investment Fund (GPIF), the largest retirement fund in the world, has started selecting domestic alternative asset funds.
Meanwhile, in Australia, the Westpac Leading Index has fallen below trend for the first time since late 2024, signaling potential challenges ahead for economic activity in the next few months.
New Zealand’s current account balance showed a significant improvement in Q2 2025, registering a deficit of just -0.970 billion NZD, well above the expected -2.700 billion NZD. At the same time, consumer confidence remained steady at 90.9, slightly down from the previous quarter but still a relatively solid figure.
In Canada, the Consumer Price Index (CPI) inflation for August came in at 1.9% year-over-year, just below the 2.0% forecast. Housing Starts in August also fell to 245.8K, missing expectations of 277.5K. Despite this, RBC’s consumer data indicates that Canadians remain resilient, with core sales rising 0.4% month-over-month, although the overall headline figure fell 2.2% due to lower gasoline prices.
On the oil front, a private survey by the American Petroleum Institute (API) revealed a larger-than-expected draw in crude oil inventories, which is expected to impact the official government report due later in the week.
Against this backdrop, the U.S. Dollar Index (DXY) approached the yearly low marked in July, before bouncing off a bit, allowing EURUSD to retreat from a four-year high. That said, GBPUSD also eases from a 2.5-month high, whereas USDJPY posts a three-day losing streak to approach a two-month low. Further, AUDUSD seesaws near an 11-month high, while NZDUSD makes rounds to a five-week top. Moving on, USDCAD licks its wounds at the lowest level in a month while Crude Oil snaps its three-day winning streak at a week’s high. That said, Gold retreats after hitting a record high near $3,703, whereas the Asia-Pacific equities edge higher after a pullback in the Wall Street benchmarks from the record top. At last, Bitcoin (BTC) stalls a two-week uptrend near the highest level in a month, whereas Ethereum (ETH) drops for the fifth consecutive day, hitting the weekly low of late.
EURUSD paused its four-day winning streak, pulling back from its highest point since September 2021, as the U.S. Dollar fell to its lowest level of the year in July before bouncing back. The Euro's retreat was influenced by mixed sentiment data from the EU and Germany’s ZEW, along with weaker Eurozone industrial production figures. Additionally, rising political tensions in France and between the EU and China, along with EU-US trade issues, put pressure on the Euro bulls, despite its recent surge. However, the overall weaker U.S. Dollar and a bullish breakout from a two-and-a-half-month triangle still favor the Euro as markets prepare for EU Inflation, European Central Bank (ECB) President Christine Lagarde’s speech and the key FOMC monetary policy announcements.
GBPUSD faces difficulty as mixed UK employment data and persistent inflation weigh on the currency, but the generally weaker U.S. Dollar still supports buyers, keeping the pair at its highest point since early July. The UK’s budget criticisms, political struggles for the new government, and ongoing inflation issues complicate the Bank of England's (BoE) decision-making ahead of Thursday’s monetary policy meeting.
Meanwhile, Japan’s trade figures have been underwhelming, and the GPIF’s recent shift towards domestic investments adds pressure on USDJPY bears. Despite expectations of a rate hike from the Bank of Japan (BoJ), the Yen is supported by its traditional safe-haven appeal and concerns over the growing policy divergence between the Federal Reserve and the BoJ.
Commodity-linked currencies have gained strength recently, supported by China’s stimulus measures and hopes for strong holiday bookings, along with a broadly weaker U.S. Dollar. However, mixed economic data from Australia, New Zealand, and Canada, along with concerns about slower growth and the potential for further declines in crude oil prices (a key export for Canada), are keeping a lid on the bullish momentum for AUDUSD and NZDUSD. At the same time, these concerns are also posing a challenge for USDCAD sellers.
Currently, AUDUSD is holding near an 11-month high, while NZDUSD has eased slightly from its one-month peak. USDCAD, on the other hand, has bounced off September’s lows, with market participants awaiting key events, including today’s Bank of Canada (BoC) interest rate decision and the upcoming Federal Open Market Committee (FOMC) meeting news.
Gold prices paused after hitting an all-time high (ATH) the previous day, ending a three-day winning streak, though there’s still no clear downside momentum. Similarly, crude oil also pulled back after a strong three-day rally, despite a surprisingly large weekly inventory draw reported by the API data.
Gold’s strength has been notable, as it has remained strong for five consecutive days, consistently reaching new ATH levels. However, concerns are growing that the market could face a price consolidation if the Federal Reserve surprises investors with a hawkish stance on rate cuts. While a 0.25% rate cut is widely expected, any hints of uncertainty or a data-dependent approach could cause volatility in the gold market.
Wall Street dips on Tuesday after hitting new highs on Monday, as investors take profits ahead of the FOMC meeting and amid mixed news on TikTok and Oracle. Nasdaq ends its 9-day winning streak, while the S&P 500 and Dow Jones pull back from record highs. In the Asia-Pacific, stocks are slightly up but lack strong momentum.
Cryptocurrencies are mixed: Bitcoin (BTC) rebounds, Ethereum (ETH) drops for the fifth day, and altcoins like Solana (SOL) remain steady. The mixed sentiment is driven by strong institutional demand, technical issues, and lower trading volume as markets await the FOMC.
Ahead of the Federal Reserve's key announcements, traders will focus on UK/EU inflation data, ECB President Lagarde's speech, and the Bank of Canada's rate cut.
Today’s main event is the Fed’s decision, vote, and outlook on future rates. Will the dot plot suggest 1 or 2 more rate cuts this year? What’s the rate path for 2026? Markets will also watch Fed Chair Powell, who’s likely to avoid pre-committing, especially with strong retail sales and inflation still above 2%. However, if dissenting voices grow, Powell might reflect that in his comments.
If the U.S. Dollar rebounds, EURUSD could see a sharp drop, as it's near multi-year highs. Other major currencies, commodities, and cryptocurrencies may pull back, while Gold could remain steady, despite a possible slight dip in prices.
May the trading luck be with you!
