The market remained optimistic on Tuesday after ceasefire announcements about Iran and Israel, easing war concerns. Despite discussions suggesting limited impact from US strikes on Iran’s nuclear program, and Israel's stance on blocking any nuclear rebuild efforts, market sentiment stayed positive.
In China, Premier Li indirectly criticized US policies at the World Economic Forum. Still, his plans to shift China from a manufacturing-driven economy to a consumption powerhouse kept the mood upbeat. However, China's secret efforts to reduce the US Dollar's global dominance could reignite US-China tensions, especially with no clear updates on the Geneva trade pact after the 90-day tariff pause.
Fed Chair Powell’s testimony on Capitol Hill also weighed on the US Dollar. Powell expressed concerns over inflation, growth, and employment, hinting at potential rate cuts in July. Other Fed officials echoed similar concerns, contributing to a softer USD, especially alongside geopolitical relief.
Economic data was mixed, with downbeat US consumer confidence and house price index reports contrasting with upbeat economic activity data from the Richmond and Philadelphia Fed surveys. Despite this, the US Dollar ended lower on Tuesday, staying sidelined early Wednesday.
In Europe, ECB officials maintained a cautious stance, which, alongside similar concerns from the BoE and UK economic surveys, challenged EURUSD and GBPUSD after they hit multi-day tops. The USDJPY dropped to a two-week low, though it recovered slightly on Wednesday amid mixed signals from the BoJ.
Meanwhile, commodities like Gold and Crude Oil slipped, with Gold hitting its lowest in two weeks and Oil dipping to its lowest since early June. This was despite softer US Dollar sentiment. Equities, on the other hand, showed strong gains, and cryptocurrencies also posted positive moves, while bond yields remained under pressure.
Germany's IFO sentiment figures for June showed mostly positive results, but ECB policymakers like de Guindos, Kazimir, and Lane remained cautious about the economic outlook. Despite this, EURUSD reached its highest point since October 2021, likely driven by a weaker US Dollar and market focus on the 1.1650 technical resistance level. However, the pair showed sluggish performance today.
Meanwhile, USDJPY saw its largest daily drop in almost three weeks before recovering slightly on Wednesday. The weaker USD and a hawkish Bank of Japan (BoJ) stance weighed on the pair. Earlier Wednesday, BoJ board member Naoki Tamura suggested rate hikes, while Japan’s services PPI came in stronger than expected. However, the BoJ's Summary of Opinions revealed some members advocated for keeping rates steady, citing uncertainty about the impact of US tariffs on Japan’s economy, which complicated the outlook for USDJPY bears.
BoE Governor Andrew Bailey and policymaker Ramsden highlighted challenges in the UK labor market, testing GBP/USD at its highest level since early 2022. Surveys from Brightmine and Indeed also pointed to a struggling labor market, with rising concerns over inflation and economic growth. These concerns, along with mixed UK data and fears about the country’s ability to avoid a return to economic contraction, are adding pressure to GBPUSD.
AUDUSD and NZDUSD faced challenges during their three-day winning streak, while USDCAD reversed the previous day's loss, the first in six days, as crude oil prices remained weak. Cautious optimism from commodity-linked currencies, along with hints from China, helped keep support.
Australia's monthly inflation showed a slowdown, raising concerns that the RBA might cut rates further. New Zealand’s trade data was mixed, offering no clear direction. Meanwhile, Canadian inflation was firmer, but weaker crude oil prices and uncertainty around the US-Canada trade deal created doubts for USDCAD sellers.
Gold and crude oil prices remained under pressure, even as the US Dollar weakened and markets found relief in a temporary ceasefire. Hopes of a boost in buying were overshadowed by easing fears over oil supply shortages and typical seasonal pullbacks in gold demand.
Notably, WTI crude failed to rally despite a larger-than-expected drop in US stockpiles, according to API data. Similarly, gold didn’t benefit from China’s reported willingness to increase its gold reserves.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) climbed for two straight days, fueled by optimism from the Israel-Iran ceasefire and strong ETF inflows. However, both cryptocurrencies slipped early Wednesday as investors grew cautious, awaiting further signals to sustain the rally.
The retreat comes amid rising uncertainty around a potential U.S. bill that could reshape crypto regulations, along with anticipation over Friday’s vote on the “Big, Beautiful Budget,” both of which are keeping crypto buyers on edge.
Looking ahead, Fed Chair Jerome Powell’s Senate testimony, along with speeches from BoE officials, US New Home Sales, and weekly crude oil inventories, will attract momentum traders. However, most of Powell’s comments were already covered in his House testimony, so little new insight is expected. This could lead to market consolidation, with softer housing data likely keeping pressure on the US Dollar.
As a result, major currencies might stay stronger, potentially helping commodities recover. Cryptos, however, may need additional catalysts to maintain their recent two-day rally. Equities are expected to hold steady, while Antipodean currencies might struggle. Headlines around the Middle East and US trade deals will continue to draw attention, but market moves are likely to be more muted compared to earlier in the week.
May the trading luck be with you!
