Risk sentiment is mixed early Monday as traders digest Friday’s weak U.S. jobs report and President Trump’s actions, amid a quieter economic calendar. Moody’s Chief Economist raised concerns about a U.S. recession, citing disappointing data like the Nonfarm Payrolls (NFP), ISM Manufacturing PMI, and University of Michigan Consumer Sentiment. Mark Zandi of Moody’s Analytics also warned that rising inflation complicates Federal Reserve policy.
Trump stirred more uncertainty by sending U.S. nuclear submarines to the Russian region and firing Bureau of Labor Statistics Commissioner Erika McEntarfer. A surprise resignation of Fed Governor Adriana Kugler added to concerns about political pressure on key institutions, especially with Trump’s push to cut Fed rates and remove Powell.
China’s rare earth metal export restrictions to the U.S. and disappointing PMI data added to economic worries, especially with ongoing trade tensions. Japan also raised doubts about the U.S.-Japan trade deal’s enforceability, while political instability within Japan, including PM Ishiba’s election loss and pressure to resign, added to global uncertainty.
Other factors, like the U.S. tariffs and Trump’s challenges with North Korea, Iran, and Russia, further rattled markets. The U.S. also imposed 25% tariffs on India due to its ties with Russia, which added to the negative mood.
This risk-off sentiment hurt the U.S. Dollar and fueled a surge in Gold, while pushing equities and bond yields lower. Early Monday, the U.S. Dollar Index (DXY) struggled after its largest daily drop since April 10, following weak U.S. data. This also caused a bounce in USDJPY after its recent slump. EURUSD and GBPUSD pulled back, while USDCAD struggled to extend the previous fall. AUDUSD rose following positive Aussie inflation data, while NZDUSD retreated amid the broader market caution.
Crude Oil continued its three-day losing streak, driven by concerns over slower U.S. energy demand and OPEC’s decision to increase output in September. Wall Street closed lower, bond yields drifted down, and cryptocurrencies struggled to maintain their weekend bounce after a tough week and reduced ETF inflows. Despite the White House’s efforts to ease crypto regulations, market sentiment remained cautious.
Friday’s weak U.S. jobs report sparked concerns about the economy, adding pressure on the U.S. Dollar. This, combined with the Fed’s reluctance to cut rates and Trump’s political influence on the central bank, weighed on the Dollar. Notably, EURUSD and GBPUSD saw significant gains despite lacking major positive news, with ongoing trade tensions, poor economic data, and central bank uncertainty at home.
USDJPY is recovering from its biggest daily drop since April, despite negative comments from Japan’s chief trade negotiator, concerns over the BoJ's rate hike, and political pressure on PM Ishiba to resign. The Yen pair also fails to benefit from the JPY’s safe-haven status, as traders eye the potential return of carry trade positions that previously pressured USDJPY. This week’s release of the BoJ’s June meeting minutes and July summary of opinions could offer clues about future BoJ moves, potentially adding upward pressure on USDJPY.
Australian inflation for July hit a 19-month high, according to the Melbourne Institute's gauge, helping AUDUSD maintain Friday’s rebound, though upside momentum remains weak. NZDUSD faces pressure from China-related concerns and broader market caution, while USDCAD seesaws after pulling back from its highest point since late May. The indecision in USDCAD is linked to cautious sentiment ahead of this week’s Trump-Carney trade talks and Crude Oil’s weak performance—Canada’s key export. The upcoming Canada jobs report on Friday also weighs on USDCAD, especially with Canadian markets closed Monday.
Gold takes a pause after two straight days of gains as markets remain cautious, while WTI crude oil drops for the third day in a row. A broad US Dollar decline and market pessimism, along with the latest World Gold Council report, support renewed haven demand for Gold. Meanwhile, OPEC agreed to increase production by 548K bpd in September, as expected. This, coupled with concerns over declining demand from the U.S. and China due to weak economic data, weighs on oil prices.
Despite the U.S. government's pro-crypto actions and heavy buying from crypto-friendly firms, Bitcoin (BTCUSD) and Ethereum (ETHUSD) struggled last week. A pause in ETF buying, which had previously supported these cryptocurrencies, along with technical corrections and month-end consolidation after July’s strong rally, led to a pullback in their prices.
With a Canadian holiday and a light economic calendar elsewhere, markets may see a quieter start to the week. Attention will be on the European Union (EU) Sentiment Investor Confidence for August and speeches from mid-tier central bankers from the European Central Bank (ECB), Federal Reserve (Fed), and Bank of England (BoE). However, the main focus will be on market reactions to recent U.S. data raising concerns about a potential recession, alongside fears driven by former U.S. President Donald Trump’s trade and political moves.
While recent earnings from major Wall Street firms have been positive, risk aversion has weighed on equities, potentially allowing risk assets to recover some recent losses on a calmer day. The U.S. Dollar may consolidate, which could limit upward movement in Gold and USDJPY. Meanwhile, equities could regain some ground, bond yields may bounce back, and cryptocurrencies could recover from earlier losses.
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