Monday was a less volatile day for global markets, marked by limited economic activity due to Japan’s market holiday and fewer data releases, despite geopolitical headlines over the weekend sparking investor caution. Market sentiment took a hit after former U.S. President Donald Trump threatened to destroy Iran’s nuclear facilities once again, if needed, after Iran expressed its readiness to enrich uranium, calling it a matter of “national pride”. These developments raised concerns about a potential resurgence of Middle East tensions. However, some relief came from U.S. Treasury Secretary Jane Bassent, who suggested that while trade deals with key partners may be delayed, they are ultimately on track, helping to contain risk-off mood.
Adding to geopolitical concerns, Ukrainian President Volodymyr Zelenskiy confirmed that the next Ukraine-Russia meeting is scheduled for Wednesday in Turkey, keeping markets on edge. Meanwhile, economists from the U.S.-based research firm T.S. Lombard criticized growing political interference in the Federal Reserve, warning about efforts to unseat Fed Chair Jerome Powell. They highlighted rising fears of persistent inflation, the potential decline of the U.S. Dollar’s status as the global reserve currency, and a possible shift in favor of the Euro and the European Central Bank (ECB).
Trade deal discussions remained a key focus as policymakers from the European Union and Japanese Prime Minister Ishiba stepped up efforts to secure agreements with the US before the August 1 deadline to avoid heavy tariffs. Ishiba faced additional political pressure after retaining his leadership role despite his party losing majority control in both houses of Japan’s Parliament.
On Wall Street, technology stocks led the gains, with Verizon’s strong earnings helping the Nasdaq Composite to close at a new record high. The S&P 500 ended the day with modest gains, while the Dow Jones Industrial Average slipped amid trade and political worries. Optimism surrounding this week’s earnings from Alphabet (Google’s parent company) and Tesla, especially following the impressive performance of Nvidia and other major tech names, helped keep overall market sentiment upbeat despite a mixed broader picture, a light economic calendar, and the Federal Reserve’s blackout period.
Economic data releases added to the cautious optimism. The Richmond Federal Reserve Manufacturing Index is expected to rise following last week’s solid Philadelphia Fed Manufacturing Index. In Canada, the Bank of Canada’s Business Outlook Survey indicated a bleak business environment but stronger-than-expected Producer Price Index (PPI) data. In New Zealand, the trade deficit widened, while the Reserve Bank of Australia (RBA) struck a cautious tone in its meeting minutes, signaling hesitancy toward further rate cuts. However, this failed to support the Australian Dollar. Meanwhile, an ECB survey showed a decline in one-year inflation expectations, which raised concerns about potential rate cuts during Thursday’s monetary policy decision, lending support to the Euro against a weakening U.S. Dollar.
The U.S. Dollar Index (DXY) posted its largest single-day drop since late June, allowing EURUSD and GBPUSD to rally the most in nearly a month. USDJPY fell sharply as markets reacted to disappointment over Japan’s weekend elections. The Australian Dollar, New Zealand Dollar, and Canadian Dollar also gained against the U.S. Dollar but later pulled back as Japanese traders returned after the long weekend, leading to market consolidation.
Crude Oil prices remained under pressure despite rising U.S.-Iran tensions, as traders awaited weekly U.S. inventory data from the industry player American Petroleum Institute (API). Further, gold benefited from the softer U.S. Dollar and cautious market mood, breaking through a month-old technical resistance, but struggled to sustain further upside. Cryptocurrencies started the week on a positive note before paring gains later in the day, while bond yields drifted lower.
With Japanese traders returning from a long weekend and the European Central Bank’s (ECB) monetary policy meeting approaching, along with fresh sentiment concerns, the U.S. Dollar shows hesitation in extending its two-day losing streak. This, in turn, limits gains in EUR/USD and caps losses in USD/JPY. Interestingly, EURUSD posted its biggest daily gain in a month, largely ignoring the ECB’s softer inflation survey, cautious policymaker comments, and lingering EU-U.S. trade deal uncertainties. Meanwhile, USDJPY opened the week with a downside gap and fell as Japanese traders moved toward safer assets amid rising U.S.-Japan trade tensions and renewed political uncertainty in Japan following recent elections. The loss of Prime Minister Ishiba’s party in the upper house elections—after already losing the lower house in October—raises concerns about political instability and poses fresh challenges for the Bank of Japan (BoJ) in pursuing further rate hikes.
Like other major currency pairs, GBPUSD posted its biggest daily jump in a month, mainly supported by the weaker U.S. Dollar. However, the Pound Sterling has started to pull back ahead of upcoming speeches from Bank of England (BoE) Governor Andrew Bailey and US Federal Reserve (Fed) Chair Jerome Powell, despite the ongoing Fed blackout period. The recently signed US-UK trade deal offers some support to the British Pound, even as the broader economic and political backdrop in the UK remains weak. BoE policymakers continue to point to global uncertainty to justify their current policy stance, while Powell is not expected to discuss monetary policy or the economy, in line with Fed rules. However, any comments from Powell related to the banking system could influence GBPUSD, especially if the tone appears optimistic.
The Australian, New Zealand, and Canadian Dollars pared earlier gains amid cautious market sentiment and a lack of fresh headlines from China, after the People’s Bank of China (PBoC) left its benchmark interest rates unchanged the previous day. The Australian Dollar (AUD/USD) came under pressure following a cautious tone in the Reserve Bank of Australia’s (RBA) meeting minutes, while the New Zealand Dollar (NZD/USD) weakened due to a wider trade deficit. Meanwhile, the Canadian Dollar (USD/CAD) bounced as crude oil prices softened, ignoring stronger Canadian Producer Price Index (PPI) data and a mixed Business Outlook Survey from the Bank of Canada (BoC). Lingering uncertainty around the US-Canada trade deal also supports USD/CAD buyers, who now look ahead to July’s Purchasing Managers’ Index (PMI) data for further direction.
Gold recorded its biggest daily jump in seven weeks, while Bitcoin (BTC/USD) and Ethereum (ETH/USD) also started the week on a stronger note, though both trimmed some gains by the end of the day. Crude oil, on the other hand, remained under pressure amid demand concerns linked to President Trump’s tariff threats and expectations of increased supply from OPEC+. A softer U.S. Dollar supported both Gold and cryptocurrencies, further boosted by strong institutional inflows. Meanwhile, oil prices stayed weak as economic uncertainties and the prospect of higher output continued to weigh on energy demand outlook.
Looking ahead, Tuesday’s market focus will be on speeches from U.S. Federal Reserve (Fed) officials and Bank of England (BoE) policymakers, along with the release of the U.S. Richmond Fed Manufacturing Index, the European Central Bank (ECB) Bank Lending Survey, and weekly crude oil inventory data from the American Petroleum Institute (API).
However, due to the Fed’s blackout period, neither Chair Jerome Powell nor any other Fed officials scheduled to speak on banking topics are expected to comment on monetary policy or the broader economy. BoE Governor Andrew Bailey may strike an optimistic tone, but his remarks are unlikely to strongly support GBPUSD, especially given the recent economic and political uncertainty in the United Kingdom.
Equity markets, particularly technology stocks, are expected to stay firm ahead of Alphabet’s earnings results after the U.S. market close. A strong showing could boost risk sentiment, which may weigh on the U.S. Dollar and lift demand for other assets—provided trade and geopolitical headlines remain favorable. Still, the Dollar’s movement may stay limited as markets await upcoming data, including July’s Purchasing Managers’ Index (PMIs) and Durable Goods Orders, especially with Thursday’s ECB policy decision in sight.
Overall, Tuesday is likely to be more active than Monday, but traders should remain cautious with major decisions amid mixed catalysts and event risk.
May the trading luck be with you!
