The week began with concerns about a potential U.S. government shutdown and uncertainty surrounding the U.S. Federal Reserve (Fed). However, strong U.S. data and optimism from Wall Street provided relief for traders. Despite this, cryptocurrencies and the U.S. Dollar slid, while Gold and equities hit record highs. Market sentiment remained uncertain early on Tuesday due to a holiday in Japan and caution ahead of the preliminary Purchasing Managers' Indices (PMIs) from major global economies and U.S. Federal Reserve Chairman Jerome Powell’s speech.
According to CNBC News, the U.S. Senate rejected both Democratic and Republican proposals to temporarily fund the federal government. Lawmakers have until September 30 to pass a funding bill, increasing the risk of a government shutdown, which heightened risk aversion in the markets.
In last week’s press conference, Jerome Powell, Chairman of the U.S. Federal Reserve, described the recent rate cut as a “risk management” decision. He emphasized that future monetary policy will remain data-dependent and downplayed revisions to U.S. employment data, pointing to immigration as a major driver of labor market changes, rather than weakness in the job market.
A pair of U.S. Federal Reserve officials, Beth M. Hammack and Alberto Musalem, expressed reluctance to implement further rate cuts due to inflation risks, both noting that the economy is performing decently and may even be improving. Thomas Barkin, President of the Federal Reserve Bank of Richmond, took a more neutral stance, acknowledging rising business confidence, while Stephen Miran, the newly appointed Fed Governor, continued to advocate for an aggressive 200 basis point (bps) rate cut in the near term.
U.S. economic data released after the Fed meeting also came in stronger than expected. For example, the Chicago Federal Reserve National Activity Index improved to -0.12, up from a revised -0.29, marking a five-month high. This data raised doubts about the Federal Reserve’s ability to lower interest rates further.
The strong U.S. data kept Treasury bond yields firm across all maturities, signaling a reversal from multi-month lows, particularly in short-term bonds.
A global survey from Revalize showed that more manufacturers are exiting the U.S. market due to tariff pressures, economic unpredictability, and rising compliance costs. Jamie Dimon, Chairman and CEO of JPMorgan Chase, warned that tariffs could have inflationary effects, adding pressure on the U.S. economy. Scott Rubner of Citadel Securities cautioned that the 39th trading week of the year is typically one of the weakest for the S&P 500, often marked by declines of around 1%.
Rising tax receipts in the U.S. provide fiscal support, but Germany’s economic growth remains constrained by weak demand and external tariff risks, challenging the EURUSD exchange rate.
Meanwhile, in Japan, the leadership race to succeed outgoing Prime Minister Shigeru Ishiba has heated up, with contenders Sanae Takaichi and Shinjiro Koizumi offering different views on fiscal policy. Takaichi, known for supporting aggressive fiscal and monetary stimulus, argued that extra tax revenues should be used to ease the rising cost of living, while Koizumi emphasized fiscal discipline, advocating that new spending should be funded by higher revenues and cuts to wasteful outlays.
Australia’s preliminary PMIs dropped in September, although Michelle Bullock, Governor of the Reserve Bank of Australia (RBA), indicated that the economy is showing signs of improvement, which could prompt a pause in rate cuts. New Zealand is set to appoint its first female governor for the Reserve Bank of New Zealand (RBNZ), with the announcement expected soon.
Canada’s Producer Price Index (PPI) for August rose 0.5% month-over-month, exceeding expectations of a 0.2% increase. Canadian Prime Minister Mark Carney made headlines by announcing that Canada now officially recognizes the state of Palestine, signaling readiness to challenge U.S. tariffs. However, this announcement failed to generate significant market movement.
In the cryptocurrency market, major coins dropped between 2.0% and 20%, despite several positive developments.
Amid these plays, the U.S. Dollar Index (DXY) ended a three-day winning streak, retreating from its weekly high. The EURUSD currency pair bounced off a seven-week trend-line support, with the U.S. Dollar weakening, but retreated of late. Other major currencies improved on Monday, but momentum remained weak. Gold hit an all-time high, Crude Oil fell for the fourth consecutive day, and U.S. equities continued to rise with the Dow Jones 30, S&P 500, and Nasdaq 100 all hitting record highs despite a slow start to the week.
EURUSD bounced off a key support level due to broader U.S. Dollar weakness, but has been sidelined recently. The pair's retreat may be linked to ongoing geopolitical and trade tensions in the Eurozone, along with cautious sentiment ahead of today’s EU/US PMIs and Federal Reserve Chair Jerome Powell’s speech. Notably, the U.S. is pressuring the EU to impose more sanctions on Russian oil customers, like India and China, in an effort to halt Russia’s attacks on Ukraine. However, the EU has yet to take significant action and is more focused on sanctions against Russia itself rather than escalating with sanctions on other countries.
GBPUSD struggles to maintain the previous day's recovery as the market remains lackluster and traders await key data.
Meanwhile, USDJPY pauses its two-day losing streak but lacks momentum for a full recovery due to a holiday in Japan and mixed statements from potential Japanese Prime Minister candidates.
AUDUSD and NZDUSD saw mild gains the previous day due to a weaker U.S. Dollar but retreated on Tuesday amid cautious market sentiment, disappointing Australian data, and concerns over a potential change in Reserve Bank of New Zealand (RBNZ) leadership.
Meanwhile, USDCAD dropped for the second consecutive day, weighed down by falling crude oil prices — Canada’s key export — as well as trade and political tensions in Canada.
Gold extended its three-day winning streak, hitting a new record high near $3,760 as investors flocked to the traditional safe haven amid uncertain times. Strong demand from India, China, and global central banks also supported the precious metal.
Meanwhile, WTI crude oil fell to a two-week low the previous day and remains under pressure on Tuesday. The weakness in oil prices can be attributed to concerns about demand, a lack of major disruptions to global oil supplies, and the recent OPEC+ decision to increase output.
Crypto bears dominated the market the previous day, with major coins dropping between 2.0% and 20%.
In crypto-related news, China’s China Securities Regulatory Commission (CSRC) instructed some brokerages in Hong Kong to pause tokenization of real-world assets due to concerns over risks in the growing digital asset market.
Additionally, Anthony Scaramucci, founder of SkyBridge Capital, and Hivemind Capital are backing a new venture to acquire Avalanche (AVAX) tokens. AgriFORCE Growing Systems, which pivoted from agriculture-tech to Bitcoin mining, plans to raise $550 million to acquire AVAX tokens, with Scaramucci joining as head of the advisory board.
Meanwhile, despite a weak start to the week, U.S. equity benchmarks, including the S&P 500 and Nasdaq, turned around and reached new record highs. Nvidia boosted market sentiment with a $100 billion investment in OpenAI. The stock market continues to heavily invest in artificial intelligence (AI), though some investors are questioning whether the returns will justify the massive spending.
A series of September PMIs and Fed Chair Jerome Powell’s speech will make Tuesday a key day for the markets, with concerns over a potential pullback in Gold and equities.
If Powell reaffirms his data-dependent stance and U.S. PMIs show strength, the U.S. Dollar could bounce back, putting downward pressure on EUR/USD. This could also lead to a pullback in gold prices and add further downside pressure on cryptocurrencies.
However, technology stocks remain strong and could support U.S. equities, unless Powell rules out further rate cuts entirely, which seems unlikely.
May the trading luck be with you!
