Market sentiment remains fragile early Wednesday and slightly negative, despite U.S. policymakers ending the partial government shutdown. Caution stems from U.S. ICE tensions, concerns over the Federal Reserve’s independence, the cancellation of Friday’s U.S. employment report, and nervousness ahead of today’s ISM Services Purchasing Managers’ Index (PMI) and ADP Employment Change. Rising U.S.-Iran tensions add further pressure.
U.S. President Donald Trump signed a $1.2 trillion (£880 billion) budget to end the shutdown that began on Saturday. The deal passed the U.S. House of Representatives by 217–214 and cleared the Senate last Friday. It funds most government agencies through September, the end of the fiscal year, while the Department of Homeland Security (DHS) is funded only until the end of next week, making it a key market focus.
Speculation that Kevin Warsh may be nominated as the next Federal Reserve Chair to replace Jerome Powell in May failed to boost market confidence. Republican Senator Thom Tillis said a presidential pardon for Jerome Powell would not end the deadlock over Federal Reserve nominations. Tillis, a member of the Senate Banking Committee, said he will block nominees until the Justice Department completes its investigation into Powell’s past testimony. With Republicans holding a slim majority, Tillis’ opposition alone can stall Warsh’s confirmation without Democratic support.
Federal Reserve messaging was mixed, as Richmond Fed President Thomas Barkin said inflation remains above target, but further progress is expected, while Fed Governor Stephen Miran said interest rates may need to be cut by about one percentage point this year. Separately, reports said the U.S. military shot down an Iranian drone that approached an aircraft carrier.
In foreign exchange, the Australian dollar held strong gains after a rate hike and hawkish guidance from the Reserve Bank of Australia (RBA). Australia’s services sector started 2026 strongly, with the Services Business Activity Index hitting a near four-year high as demand surged, new business rose, and firms stepped up hiring, extending the expansion to two years.
The Japanese yen failed to attract safe-haven flows, reflecting investor focus on valuation gaps and diverging central bank paths between the RBA and the Bank of Japan (BoJ). Japan’s Services Business Activity Index rose to 53.7 from 51.6, an eleven-month high, marking ten consecutive months of expansion.
Further, China’s Services Business Activity Index rose to 52.3 in January from 52.0, a three-month high, supported by stronger demand, higher new orders, and improved export-related business, extending growth beyond three years.
In New Zealand, the Commodity Price Index rose 2.0% month-on-month in January after a 2.1% decline, and increased 1.3% month-on-month in New Zealand Dollar terms. The jobs report showed firmer hiring, but unemployment edged up to a ten-year high of 5.4% from 5.3%, slightly above expectations.
Amid these plays, the U.S. Dollar Index (DXY) remains defensive, mildly offered, and keeping the previous day’s pullback, while the Gold price rises over 2.0% to stretch the previous day’s recovery. Meanwhile, major currencies also stop the sell-off, but the cryptocurrencies remain pressured, and the Asia-Pacific shares drift lower after a downbeat performance on Wall Street. Notably, USDJPY stays on the front foot, while AUDUSD and USDCAD also remain firmer versus the Greenback, while NZDUSD lacks upside momentum.
The U.S. Dollar’s retreat joined the market’s cautious optimism to underpin mild recoveries in the EURUSD and the GBPUSD prices. However, USDJPY failed to justify strong Japan Services PMI data, increasing the odds of the BoJ rate hike, by rising for the fourth consecutive day to hit a 10-day high.
The U.S. Dollar’s pullback fails to give clear direction to the Antipodean currencies, namely the Australian Dollar (AUD), New Zealand Dollar (NZD), and Canadian Dollar (CAD), amid rising uncertainty around China and the Federal Reserve. Political developments under Donald Trump, hawkish moves by the Reserve Bank of Australia (RBA), optimism around Canada’s outlook, and a rebound in crude oil, Canada’s key export, also influence AUDUSD, NZDUSD, and USDCAD. As a result, AUDUSD extends its post-RBA gains, NZDUSD retreats, and USDCAD comes under pressure after snapping a two-day winning streak in the previous session.
After posting notable declines in recent days, gold and silver prices rebounded in the previous session and extended gains early Wednesday. The recovery is supported by the U.S. Dollar’s pullback and market uncertainty over the U.S. government shutdown, Federal Reserve independence, and U.S.-Iran tensions. The cancellation of key U.S. data, along with caution ahead of the U.S. ISM Services Purchasing Managers’ Index (PMI), ADP Employment Change, and preliminary University of Michigan (UoM) Consumer Sentiment for February, also adds to mixed market moves and supports the precious metals.
Energy markets remained tense as fears of a U.S.-Iran conflict resurfaced. Oil prices were already weak before the drone headlines, with markets reacting as if a major escalation had been narrowly avoided, even though negotiations are still planned for Friday. Oil prices also responded to a private survey showing a large crude oil inventory draw against expectations for a build, but WTI crude oil failed to extend the previous day’s gains early Wednesday amid a mixed market mood.
On Wall Street, selling pressured technology stocks, megacap names, and Nvidia, while more than half of the S&P 500 ended higher, indicating losses were concentrated in earlier artificial intelligence leaders. Advanced Micro Devices reported strong fourth-quarter results, with earnings per share of $1.53 and revenue of $10.27 billion, beating estimates, but a weaker outlook pushed the stock lower after hours. NVIDIA and OpenAI also moved to ease recent negative headlines.
Bitcoin (BTC) dropped to $72,903, its lowest level since Donald Trump’s re-election, before rebounding about $3,000 later in the session, easing immediate risk concerns. However, broader fears across the cryptocurrency market continue to weigh on both Bitcoin and Ethereum (ETH).
Looking ahead, Wednesday’s economic calendar features Eurozone Inflation, U.S. ADP Employment Change, and the ISM Services Purchasing Managers’ Index (PMI). Markets will also closely watch the growing risk to the U.S. government reopening due to concerns around ICE actions, along with updates on U.S.-Iran tensions and Donald Trump’s trade tariff announcements.
With confidence in the U.S. government reopening still weak, fears of a possible Iran conflict, and ongoing buzz about Federal Reserve independence, the U.S. Dollar may trim recent gains. This could allow precious metals such as gold and silver to extend their recovery. However, major currencies, Antipodean currencies, and cryptocurrencies are likely to trade mixed, while equities may struggle to build on recent gains.
May the trading luck be with you!
