Risk appetite improved on Thursday, carrying modest optimism into Friday as traders responded positively to strong U.S. employment and manufacturing data, as well as the Trump administration's plans to boost U.S. manufacturing. The market’s reassessment of the Federal Reserve’s interest rate cut highlighted Federal Reserve Chair Jerome Powell’s “meeting by meeting” guidance as prudent, reinforcing a hawkish stance despite the 0.25% rate cut. This allowed U.S. Treasury bond yields to surge, especially after news that foreign holdings of U.S. Treasuries hit a record $9.16 trillion in July, driven by Japan and the UK, while China reduced its holdings to the lowest level since 2008.
In terms of U.S. data, Initial Jobless Claims for the week ending September 16 dropped to 231,000, softer than the expected 241,000 and the previous 264,000. Continuing Jobless Claims also fell to 1.92 million, outperforming the 1.95 million forecast. Additionally, the Philadelphia Federal Reserve Manufacturing Index surged to 23.2 in September, its highest level since January, far exceeding the expected 2.3.
On a positive note, President Donald Trump’s administration is considering a major initiative to boost U.S. manufacturing, potentially tapping a $550 billion fund created during trade talks with Japan. The plan would focus on sectors like semiconductors, pharmaceuticals, energy, shipbuilding, and quantum computing. These proposals are still under discussion and may change before being finalized.
In the political arena, U.S. Treasury Secretary Scott Bassent faces scrutiny after it was revealed he listed two separate homes as his “principal residence” in 2007. This situation mirrors the one that led to President Donald Trump’s firing of Federal Reserve Governor Lisa Cook. Additionally, the U.S. Supreme Court will hear oral arguments on November 5 regarding Donald Trump’s “reciprocal” tariffs, which could result in the overturning of some of his most significant tariffs.
President Donald Trump also made several comments about the Russian Federation, Ukraine, and the Israel-Gaza conflict, expressing frustration with Russian President Vladimir Putin and suggesting that a drop in crude oil prices could force Russia to end the war in Ukraine. He also stated, "I don't mind sanctions" regarding Russia, indicating continued complexities in diplomatic negotiations.
In global news, China’s Ministry of Commerce unveiled plans to expand urban convenience hubs by 2030, aiming for nationwide coverage.
Japan’s core Consumer Price Index (CPI) slowed to 2.7% in August, still above target but the weakest in nine months, which could support the Bank of Japan’s decision to keep its monetary policy unchanged.
The Bank of England left its bank rate unchanged at 4.00% in its September decision, with further rate cuts likely.
National Australia Bank expects the Reserve Bank of Australia to cut rates in November and again in February. New Zealand’s credit card spending rose 3.5% year-over-year in August, and the country reported a trade deficit of NZD 1.19 billion for the same month.
Canada’s Prime Minister Mark Carney announced a new bilateral security dialogue with Mexico while reaffirming commitments to a shared partnership with the US. Meanwhile, Mexican President Claudia Sheinbaum agreed with Canada to strengthen the United States-Mexico-Canada Agreement, and Canadian Prime Minister Carney stated that adjustments could be made to boost North American competitiveness.
Intel’s stock rose by 25% at the open after Nvidia announced a $5 billion investment, although the gain tapered slightly. FedEx also reported strong earnings, surpassing earnings per share and revenue forecasts, contributing to market optimism. Meanwhile, U.S. Treasury bond yields continued to rise, with long-term yields showing recovery after the Federal Reserve’s rate cut.
In the currency market, the EURUSD and GBPUSD both saw declines, marking a three-day losing streak. USDJPY snapped a two-day winning streak as the Bank of Japan kept its monetary policy unchanged. AUDUSD and NZDUSD both hit weekly lows, while USDCAD struggled to extend its two-day winning streak. Crude oil fell for the third consecutive day, and Bitcoin remained flat, with Ethereum showing little movement.
EURUSD dropped for the third consecutive day as strong U.S. data and rising Treasury bond yields contrasted with a widening current account deficit in the Eurozone and growing trade/political concerns.
Similarly, GBPUSD also marked a three-day losing streak, despite the U.S. Dollar lacking momentum early on Friday. This could be due to weaker UK consumer sentiment data and the Bank of England's openness to further rate cuts, even though it kept rates unchanged during Thursday’s meeting.
Meanwhile, USDJPY saw its first daily loss in three days as the Bank of Japan held its benchmark rates steady, following softer inflation data from Japan. However, strong U.S.-Japan trade relations and expectations for solid growth, along with the Japanese Yen’s safe-haven appeal, continue to weigh on the USDJPY pair.
Recent mixed data from Australia and New Zealand reinforced expectations of rate cuts from their respective central banks, joining the broadly stronger U.S. Dollar to pressure both AUDUSD and NZDUSD for a third consecutive day, despite ongoing stimulus hopes from China. As a result, both the Aussie and Kiwi failed to live up to their usual role as risk barometers.
Meanwhile, USDCAD struggled to extend its two-day winning streak, even as crude oil prices, Canada's key export, remain weak. The Canadian Dollar’s challenges could be tied to expectations of easing U.S.-Canada trade tensions, the dovish Bank of Canada stance, and disappointing Canadian economic data, all compounded by the broader strength of the U.S. Dollar.
Gold posted its first daily gain in three, bouncing off the 10-day EMA, despite a stronger U.S. Dollar, as traders flocked to the traditional haven amid ongoing uncertainty. Mixed news from China and India, two of the largest gold consumers, along with a firmer USD and rising bond yields, had previously pulled gold down from its record highs over the past two days. However, the technical breakdown of a month-long bullish channel still signals a potential short-term pullback in gold prices, particularly if the U.S. Dollar remains strong.
Crude oil fell for the third straight day, weighed down by a stronger U.S. Dollar, concerns over demand, and expectations of increased output from OPEC+ and the U.S. This decline came despite a surprise draw in the weekly U.S. oil inventories.
Meanwhile, Bitcoin (BTC) had a positive day initially but lost momentum later, while Ethereum (ETH) remained directionless. Both major cryptocurrencies struggled to fully capitalize on the U.S. Securities and Exchange Commission’s readiness to ease regulations on spot crypto ETFs and the Trump administration’s push to boost Bitcoin usage.
Looking ahead, Canada’s Retail Sales data will join Federal Reserve discussions to fill Friday’s economic calendar. It’s expected to be a relatively quiet day after a volatile week, but risk news and bond market movements could still provide key market directions.
The U.S. Dollar might experience a pullback if markets enter a consolidation phase, potentially allowing gold to gain further strength. USDJPY could drop if Bank of Japan Governor Haruhiko Kuroda sounds overly optimistic after keeping interest rates unchanged. Other major currencies may stay on the sidelines, while crude oil and the Australian and New Zealand Dollars (the Antipodeans) could weaken further. Cryptocurrencies may continue to drift, while U.S. equity benchmarks could remain firm and push to new record highs.
May the trading luck be with you!
