Asian markets opened on a positive note Wednesday after China announced a series of rate cuts and policy measures aimed at supporting its economy. The joint briefing from China’s central bank and financial regulators signaled stronger efforts to stabilize growth and hinted the long-awaited US-China trade talks, boosting early optimism.
However, geopolitical tensions quickly clouded the mood. India’s strikes on multiple targets in Pakistan and growing doubts about meaningful progress in broader US trade negotiations—including China—triggered caution among investors. Market sentiment was also dampened by uncertainty ahead of the US Federal Reserve’s monetary policy announcement.
The US dollar index (DXY) fell for a third straight day, before today’s corrective bounce, amid scepticism over the Trump administration’s trade remarks and concerns about a widening US trade deficit. In response, gold pulled back after a three-day rally, while major currencies showed mixed performance: EURUSD and GBPUSD retreat, USDJPY rebounded slightly, and AUDUSD and NZDUSD posted their first losses in four days. Meanwhile, USDCAD held steady, supported by optimism around a US-Canada trade deal and firmer oil prices. Moving on, cryptocurrencies remain range-bound, but crude oil continued to recover whereas the Asia-Pacific equities managed to bounce back modestly even after a weak close on Wall Street.
The US dollar’s slight recovery, combined with a cautious stance from euro traders, pulled EURUSD lower after three days of gains. The pair eased from a one-week high as markets awaited key data releases—Germany’s factory orders, Eurozone retail sales—and the Federal Reserve’s policy decision. Despite the pullback, EURUSD remains supported by positive political developments in Germany, renewed hopes around US-China trade talks, and expectations that the Fed may signal a pause in rate hikes.
Like the euro, GBPUSD posted its first daily loss in four sessions on Wednesday, largely due to a rebound in the US dollar and uncertainty over US-UK trade deal discussions. However, downside pressure on the British pound was limited by optimism around a potential UK-India trade agreement and stronger-than-expected UK PMI data for April, which offered some support to the currency.
USDJPY bounced off a weekly low on Wednesday, snapping a three-day losing streak as the US dollar regained momentum. The pair shrugged off stronger-than-expected April Services PMI data from Japan and instead moved in line with a broader risk-on mood in Asia, driven by China’s supportive policy signals. The rebound reflects market preference for the dollar amid shifting global sentiment and caution ahead of the Federal Reserve’s policy announcement.
Optimism around China— the world’s top commodity consumer— would typically lift commodity-linked currencies, but the Australian, New Zealand, and Canadian dollars slipped as the US dollar rebounded and traders grew cautious ahead of the Federal Reserve’s policy decision.
NZDUSD struggled to rise despite strong New Zealand employment data, as the Reserve Bank of New Zealand highlighted lingering economic uncertainty. USDCAD held firm, supported by a stronger dollar, even as upbeat sentiment around a US-Canada trade deal and rising oil prices offered some cushion. Meanwhile, AUDUSD hovered near its highest level since late November 2024 but edged lower at the time of writing.
Crude oil extends Tuesday’s rebound from a one-month low on Wednesday, supported by a larger-than-expected drop in US crude inventories, according to industry data. Additional support came from rising geopolitical tensions—including India-Pakistan clashes, stalled US-Iran and Russia-Ukraine negotiations, and renewed unrest in Gaza.
Meanwhile, gold snaps a three-day winning streak and pulled back from a two-week high. The rebound in the US dollar, combined with geopolitical uncertainty involving India—a major gold consumer—pressured the metal. Despite optimism linked to China’s economic stimulus, gold struggled to hold gains amid the stronger dollar and cautious sentiment ahead of the Federal Reserve’s decision.
Bitcoin (BTCUSD) retreated from its weekly high on Wednesday, ending a two-day winning streak, as the US dollar’s rebound weighed on crypto sentiment. This pullback came despite pro-industry developments in New Hampshire and broader optimism fueled by China’s economic moves. Meanwhile, Ethereum (ETHUSD) held a slight upward bias, continuing to trade within its two-week range.
Despite the lack of a press conference or economic projections from Fed Chair Jerome Powell, traders remain cautious ahead of Wednesday’s FOMC decision. While the Fed is widely expected to leave rates unchanged, the tone of the policy statement will be key—markets are hoping for dovish language to keep pressure on the US dollar. Apart from the Fed updates, the Eurozone Retail Sales and news surrounding the US trade deal talks, especially with China, as well as geopolitical news surrounding India and China, will be important to watch for clear directions.
Without a clear dovish tilt, the dollar’s recovery may depend on fresh catalysts from trade negotiations or geopolitical developments. Meanwhile, EURUSD may struggle to rally due to weak Eurozone data and the European Central Bank’s dovish stance. Other major currencies, including the Australian and New Zealand dollars, could trim early losses if the dollar weakens, while commodities may attract buyers under the same conditions.
May the trading luck be with you!
