Early on Wednesday, financial markets remained largely stable as traders were split on expectations regarding Federal Reserve rate cuts. The outlook was clouded by stronger U.S. economic data and resistance from Federal Open Market Committee (FOMC) policymakers, who are not eager to endorse rate reductions anytime soon. At the same time, President Donald Trump has been pressing for more rate cuts, signaling a push for greater influence over the Federal Reserve.
On Tuesday, U.S. Durable Goods Orders for July declined by 2.8%, a less severe drop than the forecasted 4.0%, with the previous month showing a sharper fall of 9.3%. Even when excluding key categories like transportation and defense, the numbers came in stronger than anticipated. In housing data, the U.S. Housing Price Index for June showed a modest 0.2% month-over-month dip, slightly below expectations, but an improvement from earlier estimates. Meanwhile, the S&P Case-Shiller Home Price Index showed a slowdown, rising just 2.1% year-over-year, below the expected 2.2% and down from the previous 2.8%.
Both the U.S. Consumer Confidence Index and the Richmond Federal Reserve’s Manufacturing Index for August exceeded expectations, but this did little to support the U.S. Dollar as it eased before Wednesday. The U.S. Conference Board’s (CB) Consumer Confidence came in at 97.4, surpassing the forecast of 96.4, though it was lower than the revised previous reading of 98.7. The Richmond Fed Index improved significantly, climbing from -20.0 to -7.0, well above the expected -11.0. However, the Atlanta Federal Reserve’s GDPNow tracker lowered its forecast for Q3 growth to 2.2%, down from 2.3% last week.
In political news, President Trump signaled his readiness for a legal challenge over the firing of Federal Reserve Governor Lisa Cook, though he expressed willingness to accept a court decision. This is part of a broader effort by the Trump administration to increase its influence over the Federal Reserve, including potential changes to the governance of the Federal Reserve’s 12 regional banks, according to anonymous sources cited by Bloomberg.
Richmond Federal Reserve President Thomas Barkin suggested that any interest rate cuts would be modest. In other developments, Trump highlighted his 10% stake in Intel, which was made possible by government funding from the CHIPS Act, and hinted at further government-backed investments in U.S. companies. Meanwhile, political tension in France rose as the Prime Minister called for a vote of confidence on proposed budget cuts.
On the global stage, President Trump acknowledged the possibility of economic sanctions on Russia if a cease-fire is not reached. Meanwhile, the Financial Times reported that both the European Union (EU) and Ukraine confirmed that the U.S. would provide an air defense shield and intelligence resources to bolster Ukraine’s security after the war. EU and NATO countries are also making plans to purchase defense systems and provide additional non-combat support.
At a U.S. Cabinet meeting, policymakers predicted that oil prices could soon rise above $60 per barrel, with domestic oil production increasing by 300,000 barrels per day. They also confirmed that trade deals with the EU, Japan, and South Korea have been completed, with the deal with South Korea remaining unchanged.
In trade negotiations, Japan’s chief trade negotiator, Akazawa, will visit Washington this Thursday to discuss Japanese investments in the U.S. Additionally, China’s senior trade envoy Li Chenggang is scheduled to visit Washington this week, marking the first high-level talks in the U.S. since the tariff truce. Li will meet with U.S. officials and business leaders to discuss key issues like soybeans, fentanyl tariffs, and tech restrictions. These talks occur amid Trump’s renewed threat of 200% tariffs on Chinese goods if Beijing restricts rare earth exports. China’s Ministry of Commerce also announced that it would unveil policies in September aimed at boosting services consumption. Meanwhile, China reported a third consecutive drop in industrial profits, falling 1.5% year-over-year, a better outcome compared to the previous 4.3% decline.
On central banking, Bank of England (BoE) policymaker Catherine Mann expressed concerns over rising inflation and weak economic growth, while Bank of Canada (BoC) Governor Tiff Macklem warned that the new U.S. tariffs and unpredictable policies are undermining economic efficiency and adding to uncertainty.
In Australia, the Consumer Price Index (CPI) for July 2025 showed a 2.8% year-over-year rise, exceeding the 2.3% forecast. Monthly inflation jumped 0.9%, compared to just 0.2% in June. Additionally, construction activity for Q2 2025 grew by 3.0%, well above the expected 0.8%. Australia’s Westpac-Melbourne Institute Leading Index, a gauge of future economic activity, showed a slight improvement, rising to 0.12% in July from 0.01% in June, signaling a slow recovery.
Against this backdrop, the U.S. Dollar Index (DXY) bounced back from losses on Tuesday, exerting downward pressure on major currencies, commodities, and stocks in the Asia-Pacific region. Wall Street finished with modest gains after a volatile session, while cryptocurrencies showed little direction after a positive day. EUR/USD and GBP/USD are set to post weekly losses, while USD/JPY gained. AUD/USD failed to rally despite stronger inflation data and Chinese stimulus news, and NZD/USD also remained weak. Meanwhile, USD/CAD climbed as crude oil prices fell, BoC Governor Macklem made dovish comments, and trade tensions with Canada persisted. Gold briefly exceeded the $3,380 resistance level before retreating, as the stronger U.S. Dollar and fears over the U.S.-China trade conflict weighed on sentiment.
While there is still uncertainty over whether the Federal Reserve will cut rates beyond September, the U.S. Dollar has strengthened. In contrast, the Euro failed to gain much traction despite optimistic remarks from European Central Bank (ECB) officials. The single currency is also weighed down by rising political tensions in France and growing concerns over the bloc’s economic struggles, particularly amid ongoing trade disputes with the U.S. and geopolitical tensions with Russia. Recent economic data from Europe has been disappointing, adding further pressure to EURUSD.
Meanwhile, despite speculation around potential rate hikes by the Bank of Japan (BoJ) and the Yen’s safe-haven appeal, the USD/JPY remains resilient. This is largely due to the strength of the U.S. Dollar and concerns that the U.S.-Japan trade agreement has not yet been finalized. Additionally, political instability in Tokyo, following Prime Minister Ishiba’s defeat in the general elections, alongside worries about slowing growth and rising unemployment, is fueling upward pressure on USDJPY.
Despite strong inflation data and a rise in the UK’s Shop Price Index, Bank of England (BoE) policymaker Catherine Mann raised concerns about the country’s employment, inflation, and growth outlook. She indirectly hinted that the BoE may struggle to halt rate cuts and remain optimistic about the economy. Interestingly, GBP/USD had risen the day before, even though UK markets were closed, mainly due to a pullback in the U.S. Dollar. However, on Wednesday, the Pound faced renewed selling pressure as the same old concerns resurfaced.
Despite signals of stimulus from China, no major obstacles in the U.S.-China trade talks, and even mixed hopes for peace between Russia and Ukraine, the Australian Dollar, New Zealand Dollar, and Canadian Dollar struggled to stay strong.
This behavior reinforces their status as risk-sensitive currencies while also reflecting the dovish outlook for the Reserve Bank of Australia (RBA), Reserve Bank of New Zealand (RBNZ), and Bank of Canada (BoC). Notably, both AUDUSD and NZDUSD reversed their previous day’s bounce, while USDCAD gained momentum.
This was driven by a significant drop in crude oil prices—the key export for Canada—following a smaller-than-expected inventory draw, according to the American Petroleum Institute (API), along with expectations from Trump’s cabinet for oil prices to reach $60.
Additionally, the U.S. is seeing increased domestic oil production. BoC Governor Macklem acknowledged the economic concerns and pointed to tariffs and political uncertainty as reasons for the challenges facing Canada.
WTI crude oil experienced its largest drop since August 1, driven by a combination of factors: a smaller-than-expected inventory draw, the Trump administration's push for increased oil production, and forecasts predicting $60 per barrel. The commodity also faced pressure from weaker global demand, partly due to ongoing tariffs, and the looming threat of Russia re-entering the energy market after months of sanctions, which it hasn’t entirely rejected, particularly in response to the U.S. push for a peace deal with Ukraine.
Meanwhile, Gold briefly broke the crucial $3,380 resistance level but retreated shortly after, staying mildly pressured near that level as of press time. This pullback comes amid mixed market conditions and a recovery in the U.S. Dollar. Concerns surrounding China’s economic outlook, combined with the U.S. displeasure over India's continued Russian oil purchases, have also dampened the appeal for Gold. Additionally, a growing preference for equities and cryptocurrencies over Gold as higher-return assets has added further downside pressure to the precious metal.
Bitcoin (BTC) fades Tuesday’s rebound from a seven-week low, while Ethereum (ETH) edges up. Bitcoin (BTC) has pulled back from its Tuesday rebound, which had lifted it from a seven-week low, while Ethereum (ETH) sees slight gains. Traders remain cautious amid concerns over the Federal Reserve’s actions and a recent shift in institutional demand. Despite this, cryptocurrencies remain relatively resilient, continuing to gain significant market support, especially from countries like the U.S. and El Salvador, as well as companies such as Strategy and Trump Media.
Looking ahead, Wednesday’s economic calendar is quieter than earlier in the week, offering traders a chance to digest recent moves. However, if geopolitical tensions, trade concerns, and Fed-related uncertainties persist, they could further bolster the U.S. Dollar and put additional downward pressure on risk assets like equities, commodities, and cryptocurrencies. Both EURUSD and GBPUSD appear poised for weekly losses and may remain under pressure unless Thursday’s Q2 U.S. GDP and Friday’s Core PCE Price Index bring surprises to the downside. Additionally, domestic economic data and political tensions could weigh further on these currencies.
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