On Wednesday, the United States Federal Reserve’s (Fed) expected 0.25% interest rate cut initially sparked optimism, with the “dot plot” suggesting two more rate cuts in 2025. However, this sentiment shifted after Federal Reserve Chairman Jerome Powell’s press conference. He clarified that the rate cut was a “risk management” decision and emphasized that future policy would remain data-dependent. Powell downplayed revisions to employment data and pointed to immigration as a key driver in changes to the labor market, rather than job market weakness. While inflation risks have eased since April, Powell cautioned that the restrictive policy stance might still be necessary due to labor market concerns.
This cautious tone led to a pullback in U.S. equities, with the Standard & Poor’s 500 Index (S&P 500) slipping, oil prices falling, and gold prices dropping by $32. The U.S. dollar strengthened, while the euro lagged. After the Federal Reserve's rate cut, Hong Kong’s Monetary Authority also lowered its benchmark interest rate by 0.25%, but central banks in Brazil and China left their respective interest rates unchanged.
Meanwhile, Mercer LLC attributed investor shifts away from the U.S. to President Donald Trump’s trade policies, with clients overseeing $17 trillion in assets moving funds toward Europe, Japan, and private markets. Bloomberg also revealed that United States Treasury Secretary Scott Bassent had listed two separate homes as his “principal residence” when securing mortgages in 2007.
On a somber note, the U.S. saw another mass shooting, with three police officers fatally shot in Pennsylvania. In Europe, the European Central Bank’s (ECB) Joachim Nagel stated that the “meeting-by-meeting” approach has been effective, and the European Union’s (EU) final readings of August’s Consumer Price Index (CPI) confirmed earlier data, with the Harmonized Index of Consumer Prices (HICP) easing, exerting additional pressure on the euro.
Elsewhere, GBPUSD reached an 11-week high, supported by an initial dip in the U.S. dollar following the Federal Reserve's rate cut and stronger UK inflation data, alongside market anticipation for today’s Bank of England (BoE) interest rate decision. However, the U.S. Dollar’s stellar rebound late Wednesday, coupled with concerns over the UK’s housing market and the challenges the BoE faces in cutting rates, caused the pound to retreat from its multi-week high, posting its second consecutive daily loss by press time.
In Japan, core machine orders for July showed a sharp month-over-month drop, although year-over-year figures improved slightly. This kept the USDJPY cautious ahead of Friday’s Bank of Japan (BoJ) interest rate decision, where no change is expected in the benchmark rate.
Australia’s labor market weakened in August, with 5,400 jobs lost, although the unemployment rate remained steady at 4.2%. New Zealand’s Gross Domestic Product (GDP) fell 0.9% in the second quarter of 2025, worse than the expected -0.3%, making the New Zealand dollar (NZD) the biggest loser among G10 currencies.
The Bank of Canada (BoC) also cut rates by 0.25%, pushing the USDCAD higher, especially with falling oil prices and a stronger U.S. dollar. Gold prices surged to a new all-time high but then posted the largest daily drop in five weeks. Despite a draw in U.S. oil inventories, crude oil prices fell due to a firmer U.S. dollar and mixed market sentiment.
Cryptocurrencies rallied after the United States Securities and Exchange Commission (SEC) approved new rules allowing exchanges like the New York Stock Exchange (NYSE) and Nasdaq to list spot cryptocurrency exchange-traded funds (ETFs) under simplified standards, cutting approval times significantly and boosting market confidence.
The U.S. dollar’s unexpected recovery, combined with growing concerns about the European Union’s (EU) economy, ongoing EU-Russia tensions, and political instability in the bloc, pulled the EURUSD pair down from its four-year high, triggering a two-day losing streak early Thursday. The pair's consolidation also reflects mixed inflation, sentiment, and activity data, along with the market's tendency to "buy the rumor, sell the news" following the Federal Open Market Committee's (FOMC) announcement.
Meanwhile, Japan’s core machinery orders raised doubts about the Bank of Japan’s (BoJ) ability to adopt a more hawkish stance, despite expectations that it will keep interest rates unchanged on Friday. The Japanese central bank is also facing domestic challenges, including weaker employment data, political uncertainty, and the recent U.S. dollar rebound.
GBPUSD fell for the second straight day, extending its pullback from the highest level since early July, as traders brace for the Bank of England’s (BoE) interest rate decision. This comes amid concerns over weaker UK employment data, a sluggish housing market, and persistent inflation. Policymakers are also facing challenges due to a lack of confidence in the new Labour government’s policies and the absence of significant trade developments to provide relief. While the BoE may defend its current stance, it’s unlikely to avoid rate cuts for long, suggesting a potential decline in GBPUSD after the BoE's decision—contrary to the U.S. dollar's reaction to the Federal Open Market Committee’s (FOMC) actions.
The U.S. dollar's strong rebound, combined with weak data from Australia and New Zealand, and fresh trade and political concerns surrounding China—despite Beijing's stimulus efforts—have led to the AUDUSD and NZDUSD leading the declines among major currencies. Meanwhile, USDCAD has risen, driven by the Bank of Canada’s (BoC) rate cut and weaker crude oil prices, Canada’s key export, despite a surprising inventory draw. These currencies, often seen as barometers for consecutive market movements, are facing additional downside pressure, as market sentiment remains mixed ahead of a slew of upcoming top-tier data and events following the Federal Open Market Committee’s (FOMC) announcement.
Crude oil failed to gain from a significant draw in U.S. weekly crude oil inventories, as reported by the Energy Information Administration (EIA), snapping a three-day winning streak. The pullback came amid a broadly firmer U.S. dollar and a risk-off sentiment in the market. The lack of geopolitical developments around Russia, Gaza, and Iran, combined with an increase in OPEC+ supply and former President Donald Trump’s pressure for more drilling, likely weighed on prices.
Gold also saw its biggest drop in a month, retreating from an all-time high and ending a three-day rally. The decline was fueled by a stronger U.S. dollar, the prevailing risk-off mood, and a natural need for consolidation after its sharp rise. However, DoubleLine Capital’s Chief Investment Officer, Jeff Gundlach, remained bullish on gold. He reiterated his \$4,000 price target earlier this year and now sees the potential for another \$340 rise, or roughly a 9.2% increase from current levels.
After an initial mixed response to the Federal Open Market Committee’s (FOMC) announcement, cryptocurrencies saw modest gains early Thursday, fueled by news from the U.S. Securities and Exchange Commission (SEC). Technical breakouts and growing optimism around institutional inflows likely added to the positive momentum. As a result, Bitcoin (BTC) surged to a one-month high, while Ethereum (ETH) edged higher, snapping a three-day losing streak.
Following the FOMC's recent moves, market focus now shifts to European Central Bank (ECB) President Christine Lagarde’s speech and U.S. employment data, which will provide secondary insights for market direction. The Bank of England’s (BoE) interest rate decision is also on traders' radar.
The U.S. dollar’s reaction to the FOMC rate cuts and dovish dot-plot fits the “buy the rumor, sell the news” pattern, suggesting that the dollar could continue to recover if today’s U.S. data surprises positively. This may lead to profit-taking in gold, cryptocurrencies, and equities.
While the dollar consolidates, it could weigh on riskier assets and major currencies, but also enhance market liquidity. The recent pullback in GBP/USD may not last long unless BoE officials adopt a more dovish stance, though this seems unlikely given Governor Bailey's economic optimism.
Elsewhere, EUR/USD and other major currencies, along with commodities, may face further weakness, while cryptocurrencies and equities could remain modestly positive.
May the trading luck be with you!
