Markets remain volatile early Thursday, following a highly turbulent day influenced by Trump’s actions, US Producer Price Index (PPI) data, and geopolitical developments. There’s also caution ahead of key US data on Retail Sales and Weekly Jobless Claims.
The US Producer Price Index (PPI) for June came in weaker than expected at 2.3% year-on-year, the lowest since September 2024. Core PPI eased to 2.6% from 3.0%. This suggests US inflation is under control, despite some signs of tariff pass-through, which weakened the US Dollar. On a positive note, US Industrial Production for June grew by 0.3% month-on-month, beating expectations.
Despite softer PPI data, markets are still expecting a stronger US Core Personal Consumption Expenditures (PCE) Index, which is the Fed’s preferred inflation gauge. This helped the US Dollar recover from earlier losses. National Economic Council Director Hassett said US inflation data looks fine, and the Fed needs to catch up. The Fed's Beige Book showed a slight increase in economic activity, while Atlanta Fed President Bostic and New York Fed President Williams resisted further rate cuts, emphasizing data-dependency.
The major market driver, however, was US President Donald Trump, who raised speculation about firing Fed Chair Jerome Powell in a letter to GOP members. This sparked fears over the Fed’s independence and led to a risk-off market sentiment, weakening the US Dollar, stocks, and yields, while safe-haven assets like Gold, Japanese Yen (JPY), and Swiss Franc (CHF) gained. However, Trump reversed his position, saying Powell’s removal would disrupt markets, leading to a recovery in the US Dollar, stocks, and yields.
Trump also mentioned progress on a trade deal with India and the potential for one with the European Union (EU), but said it was “too soon” to comment on Canada. Canadian PM Mark Carney confirmed the lack of a trade deal but stressed the need for Canada to diversify trade relationships.
On the geopolitical front, Israeli PM Netanyahu lost his majority but authorized an attack on the Syrian defense minister in Damascus. There were reports of an agreement that could lead to a halt in tensions between Israel and Syria. Meanwhile, US Secretary of State Marco Rubio said specific steps had been agreed to resolve the situation. US Middle East envoy Witkopf mentioned positive progress in Gaza negotiations.
In the UK, strong inflation data prompted Bank of England (BoE) policymaker Mann to suggest fewer rate cuts, which helped the GBP/USD recover.
In Japan, Deputy Chief Cabinet Secretary Aoki expressed concerns about currency speculation, while Japanese officials and the US continued negotiations over a trade deal. Japan’s exports fell for the second straight month, increasing pressure for a deal.
Australia's unemployment rate unexpectedly rose, weighing on the AUD/USD, while the US Dollar’s strength kept pressure on the NZD/USD. The US Dollar (USD) also recovered against the Canadian Dollar (CAD) after a brief pullback. Crude oil ended a three-day losing streak after a surprise draw in US oil inventories.
Cryptocurrencies struggled to hold onto previous gains, as there was no significant update on the expected US crypto bills. Bitcoin (BTC/USD) and Ethereum (ETH/USD) faced profit-taking after reaching multi-month highs. Meanwhile, US equities closed in the positive, and bond yields trimmed earlier losses.
EURUSD is set for its second consecutive weekly loss, driven by a stronger US Dollar and concerns about slow progress in EU-US trade talks. The US has already threatened heavy tariffs if a deal isn't reached. Additionally, ECB officials have cited macroeconomic uncertainty and inflation pressures, resisting further rate cuts and highlighting economic challenges in Europe.
GBPUSD is on track for a third weekly loss, despite stronger UK inflation. Bank of England (BoE) policymaker Catherine Mann raised concerns about higher inflation, which could hinder further rate cuts. The latest UK employment report showed mixed results, fueling fears about the country's employment and growth, particularly amid fiscal skepticism and doubts about the government’s ability to address these issues, which weighed on the pound.
The pullback in the US Dollar triggered corrective bounces in both EURUSD and GBPUSD, especially after the stronger UK inflation data.
USDJPY rebounds after yesterday's retreat from the highest level since early April, which ended a three-day winning streak. The US Dollar's weakness and growing market caution likely pressured the pair on Wednesday. However, renewed concerns over the US-Japan trade deal, weak Japanese exports, potential government intervention, and challenges for the Bank of Japan (BoJ) to raise rates are driving the Yen pair higher on Thursday, despite a retreat in Japan's bond yields.
AUDUSD drops to a three-week low, reflecting the downbeat Aussie employment report, expectations of further Reserve Bank of Australia (RBA) rate cuts, and a stronger US Dollar. The pair is also on track for its first weekly loss in four. Similarly, NZDUSD falls to its lowest since June 23, despite an upbeat New Zealand Food Price Index, as a firmer USD and negative market sentiment weigh on the pair.
Meanwhile, USDCAD recovers from the previous day's pullback, driven by growing trade tensions between the US and Canada, disappointing Canadian data, and weak crude oil prices, Canada's key export. Despite this, crude oil sees a corrective bounce on Thursday following Wednesday's weekly inventory report.
Gold pulls back from its recovery off the 50-day SMA as a stronger US Dollar and a lack of news from China give bears control. This puts gold on track for its first weekly loss in three, following a brief bounce the previous day due to a softer USD. Despite a two-day losing streak reversal, market uncertainty has led to today’s price retreat.
Meanwhile, WTI crude oil looks set for its first weekly loss in three, despite snapping a three-day losing streak early Thursday. The rebound is linked to a surprise draw in US crude oil inventories, although API data showed a sustained build. Growing geopolitical tensions also contribute to the corrective bounce in WTI crude.
Bitcoin (BTCUSD) struggles to continue its previous day's recovery, while Ethereum (ETHUSD) pulls back from a five-month high as traders await details on the much-anticipated US House passage of three key crypto bills, which Trump has pledged to support. Profit-taking at elevated levels may also be holding back the crypto bulls, despite institutional buying and technical breakouts suggesting potential for more upside.
After a highly volatile Wednesday, U.S. retail Sales and weekly jobless claims could fuel expectations of another active day. However, the US Dollar is unlikely to retreat unless Trump delivers another surprise and then reverses course, keeping markets on edge. Additionally, headlines surrounding trade, politics, and the Fed’s independence will be crucial, as Trump now appears to target the entire Fed board, not just Powell, in his push for lower rates. If this happens, the USD might pull back and pare its weekly loss, but it would likely keep pressure on major currencies, antipodeans, and commodities.
In this scenario, USDJPY, Gold, and USDCHF could see gains against the USD, particularly if there are surprises from Trump, softer US Retail Sales, or stronger Jobless Claims. Meanwhile, crypto markets will remain volatile as participants watch Capitol Hill closely, with the potential passage of key crypto bills that could drive BTCUSD and ETHUSD prices higher.
May the trading luck be with you!
