Global financial markets faced uncertainty early Tuesday, undoing the previous day’s cautious optimism. The failure of U.S. policymakers to resolve the government shutdown, along with ongoing issues related to Trump’s tariffs and political drama in Japan and Europe, weighed on market sentiment. Further uncertainty came from mixed statements by U.S. Federal Reserve (Fed) officials, concerns around upcoming U.S. data releases, and China’s "Golden Week" holidays. This kept trading activity subdued, with major currency pairs staying within narrow ranges.
U.S. Federal Reserve official Jeff Schmid stated that U.S. monetary policy remains somewhat restrictive, with inflation still high and price increases becoming more widespread. He emphasized the need to maintain inflation credibility and avoid overly aggressive demand policies that could reignite inflation. Schmid also mentioned that the recent tariffs likely won’t have a significant impact on inflation.
In other news, President Donald Trump announced a 25% tariff on all medium and heavy-duty trucks, and reversed a previous decision by President Joe Biden on access to the Ambler Road mine. Trump also commented on the possibility of supplying Tomahawk missiles to Ukraine, though he remained uncertain about their intended use.
The U.S. Senate rejected the Democrat-backed bill to reopen the government for the fifth time. Senate Minority Leader Chuck Schumer dismissed Trump’s claims of bipartisan talks on expiring health insurance subsidies, asserting that no such discussions were happening.
Harvard economist Gita Gopinath, former Chief Economist of the International Monetary Fund (IMF), criticized the Trump administration’s “Liberation Day” tariffs. Gopinath stated that while these tariffs generated revenue for the U.S. government, they largely burdened U.S. businesses and consumers, functioning more like a tax than a growth strategy.
European Central Bank (ECB) President Christine Lagarde said the disinflation process is over and that inflation is expected to stabilize around 2%. She highlighted that risks to growth have become more balanced, with trade tensions posing downside risks and potential reforms and spending offering upside potential. Policy decisions will remain data-dependent, with no pre-commitment to a specific rate path. Luis Escriva, Governor of the Bank of Spain, agreed that while uncertainty persists, risks have not materialized and expects a solid third quarter.
Also in Europe, newly appointed French Prime Minister Sebastien Lecornu handed his resignation to President Emanuel Macron and triggered a political drama in Europe, driving the Euro and fueling the U.S. Dollar in doing so.
In Japan, the Japanese Yen (JPY) fell sharply after the ruling Liberal Democratic Party (LDP) elected Sanae Takaichi as its new Prime Minister, raising concerns over potential aggressive monetary easing and increased government spending. Japan’s August household spending rose 2.3%, surpassing expectations.
In the UK, Bank of England (BoE) Governor Andrew Bailey called for a pragmatic approach to Artificial Intelligence (AI), stressing the need for investment to harness its growth potential. Bailey also recognized stablecoins as a promising innovation for the payment system, provided they meet the conditions for public trust and reduce reliance on commercial banks.
In Australia, consumer confidence dropped to a six-month low due to ongoing uncertainty over future interest rate cuts, following stubborn inflation data. Job ads fell 3.3% in September, continuing their downward trend. Meanwhile, in New Zealand, business confidence fell in Q3, signaling the risk of a technical recession and prompting expectations of further interest rate cuts by the Reserve Bank of New Zealand (RBNZ). A 25-basis point interest rate cut is widely expected in tomorrow's RBNZ meeting.
In Canada, officials are negotiating to ease U.S. steel tariffs during trade talks on Tuesday. Meanwhile, China’s gold buying continued for the 11th consecutive month, with the People’s Bank of China (PBOC) increasing its gold reserves slightly to 74.06 million fine troy ounces by the end of September, up from 74.02 million in August. China aims to push its gold reserves toward 5,000 tons, which would make it the second-largest official holder of gold after the U.S.
On the equity markets, shares of Advanced Micro Devices (AMD) surged 23% after announcing a deal with OpenAI to build data centers, potentially allowing OpenAI to own 10% of the chipmaker. Tesla (TSLA) shares also rose 5.5% following the announcement of a new vehicle model launch event set for November 7. Both the S&P 500 and NASDAQ indices reached record levels, with AMD’s rally leading the NASDAQ’s gains.
In the cryptocurrency space, Bailey’s comments on stablecoins and their potential for public trust and innovation in payments were seen as significant. Meanwhile, the U.S. Dollar Index (DXY) held its early-week gains, while other major currencies like the EUR, JPY, and AUD pulled back. Risk assets, including equities and cryptocurrencies, edged higher, and gold remained firm for the sixth consecutive day, reaching an all-time high. However, concerns over overbought conditions raised fears of a potential price correction.
Political drama in France, mixed comments from ECB officials, and a rebound in the U.S. Dollar are driving lower for the second straight day, despite mostly negative catalysts. However, the Euro pair lacks strong downside momentum, as markets remain uncertain, with no major U.S. data and unclear progress on restarting the government.
Meanwhile, USDJPY hit a fresh nine-week high, continuing its rise for the second day in a row after a 2.0% jump the day before. The pair’s strength is attributed to the perception that Japan’s Prime Minister candidate is dovish and may halt the Bank of Japan’s (BoJ) rate hike plans. Mixed data from Japan, including household spending and economic indices, also contributed to the Yen's movement.
GBPUSD is showing mild losses around the mid-1.3400s, pressured by a stronger U.S. Dollar and mixed market sentiment. The weakness may be due to traders positioning themselves ahead of Thursday’s speech by U.S. Federal Reserve Chair Jerome Powell. Additionally, there’s little optimism from recent comments by Bank of England (BoE) Governor Andrew Bailey and policymaker Catherine Mann. Traders are also bracing for the UK’s autumn budget, set for release in November, with concerns it could disappoint the British public and further pressure the government. However, the lack of major catalysts from both the U.S. and the UK is preventing a sharp decline in the GBPUSD pair for now.
Despite the firmer U.S. Dollar, the Australian Dollar (AUD), New Zealand Dollar (NZD), and Canadian Dollar (CAD) saw gains over the past two days due to the market’s cautious optimism. However, AUDUSD and NZDUSD both retreated, while USDCAD rebounded early on Tuesday. The pullback in AUD and NZD can be linked to weak consumer confidence in Australia, declining business confidence in New Zealand, and anticipation of a rate cut by the Reserve Bank of New Zealand (RBNZ) on Wednesday. Meanwhile, the cautious mood surrounding U.S.-Canada trade talks, with Canadian Prime Minister Mark Carney in Washington, also played a role. Despite this, USDCAD ignored a recovery in crude oil prices, which is a key export for Canada.
Crude oil prices have remained mostly sidelined after a two-day recovery, supported by a smaller-than-expected OPEC+ supply increase, rising tensions in the Ukraine-Russia war, and a lack of progress in the Gaza conflict.
Meanwhile, gold prices are buoyed by China’s 11th consecutive month of gold purchases, increasing market uncertainty, and a dovish Fed bias, pushing the metal to a new record high near $3,970 for the sixth straight day. However, technical analysis suggests that the bullion might be overbought, raising concerns that it may need a healthy consolidation, which could challenge the bullish trend.
Cryptocurrencies are edging higher despite the stronger U.S. Dollar, as market sentiment weakens but confidence in digital assets grows. This is fueled by support for crypto growth from the Trump administration and global corporations. However, Bitcoin (BTC) has paused its six-day uptrend, struggling after reaching a new all-time high (ATH), while Ethereum (ETH) continues to edge higher.
In the Asia-Pacific region, equities are trading mixed, mirroring the movements in U.S. share markets. This comes amid various geopolitical developments, trade-related news, and concerns over the ongoing U.S. government shutdown, which is creating a cautious mood in the market.
Looking ahead, the market faces another day of uncertainty, with a light economic calendar and a backlog of U.S. data adding to the mix of mixed trade and political headlines. Key catalysts to watch will include developments around the U.S. government shutdown, the Ukraine-Russia conflict, the Israel-Hamas situation, and Trump’s tariffs. Additionally, several central bank officials are set to speak, which could trigger market moves.
With momentum likely to remain sluggish, the U.S. Dollar may continue to defend its rebound, putting further downside pressure on major currencies, including GBPUSD. Meanwhile, growing confidence in cryptocurrencies, a rising preference for equities, and concerns about a potential pullback in gold could keep traders on their toes. It’s shaping up to be another tricky session for market participants! How do you think the markets will react to these uncertainties?
May the trading luck be with you!
