On Tuesday, market sentiment remained cautious, with traders focused on tariff concerns and discussing President Trump’s influence over US agencies like the FTC, SEC, and the Fed. Despite progress in the Ukraine-Russia ceasefire talks and the upcoming FOMC meeting, these factors didn’t boost market confidence.
A shift in sentiment occurred with positive news from China and hopes of a delay in the Fed’s rate hike. Traders also remained cautiously optimistic due to potential progress in the Ukraine ceasefire and the BoJ's inaction, helping to stabilize the market.
The Wall Street Journal reported that the US plans new tariffs targeting two countries, possibly including VAT. Further, global rating agency Fitch’s economic forecast warned that the US is starting a global trade war that could slow both US and global growth.
Elsewhere, Trump’s firing of two Democratic FTC commissioners also raised concerns about political interference with independent institutions, fueling fears of potential Fed dismissals. Meanwhile, Russian President Putin’s support for a 30-day pause in attacks on Ukraine’s energy infrastructure and Germany’s optimistic fiscal spending plan helped maintain cautious optimism heading into Wednesday’s European session.
Strong US housing and industrial production data failed to boost the US Dollar the previous day, but the pre-FOMC consolidation helped the US Dollar Index (DXY) halt its three-day losing streak, staying at a five-month low. The Dollar's weakness, along with market uncertainty, push Gold to a fresh record high near $3,040. Meanwhile, EURUSD and GBPUSD pulled back from their highest levels since October and November.
USDJPY, however, extended its four-day winning streak, reaching a two-week high as hopes for a BoJ rate hike faded and Japan's economic data remained weak. AUDUSD and NZDUSD held steady, ignoring China's stimulus hopes, while USDCAD rose, continuing Tuesday’s rebound from a two-week low. Crude Oil faced pressure after reversing from a two-week high, and cryptocurrencies showed unclear movement, while equities trimmed previous losses.
Optimism about Germany’s fiscal spending easing recession fears, along with weak US data and growth concerns, pushed EURUSD to a five-month high. However, the pair retreated early Wednesday due to pre-FOMC consolidation. The looming EU-US trade tensions and the ECB's cautious stance could also weigh on the Euro.
Meanwhile, the Financial Times reported that UK Chancellor Rachel Reeves plans to cut public spending further in the upcoming Spring Statement, renewing economic concerns for Britain. This, combined with market stabilization ahead of the Fed meeting, stalled GBPUSD’s rally at its highest level since November.
The Bank of Japan (BoJ) kept its monetary policy unchanged, in line with market expectations. This, combined with a downbeat BoJ statement and weaker data on Japan's machinery orders, exports, imports, and business sentiment, pushed USDJPY to a two-week high, marking its fourth consecutive day of gains. Ongoing discussions about Japan's potential intervention to defend the Yen, as well as trade tensions with the US, added further support to the pair. Market optimism ahead of BoJ Governor Ueda’s speech, the FOMC announcements and Fed Chair Powell’s statements also helped bolster USDJPY.
The Australian, New Zealand, and Canadian Dollars continued their losses early Wednesday, despite positive stimulus news from China and easing Ukraine concerns. This may be due to New Zealand's downbeat current account deficit and weak consumer confidence, along with a dovish outlook from the Reserve Bank of Australia (RBA). Despite stronger inflation data from Canada, USDCAD bears stepped back as crude oil prices fell on rising inventory levels and easing supply concerns, which hurt Canada's key export.
Gold surged to a new all-time high near $3,043 ahead of Wednesday’s European session, driven by market growth fears, tariff issues, geopolitical tensions, and central bank concerns. The softer US Dollar and central bank buying further boosted Gold's appeal.
Meanwhile, higher-than-expected crude oil inventory levels, according to the weekly industry survey, along with easing supply concerns, weighed on oil prices. As a result, WTI crude continued its retreat from a two-week high, aiming for early-month lows.
Despite efforts by the Trump administration to support crypto traders, low liquidity in on-chain and futures trading, along with selling by crypto whales, continues to weigh on Bitcoin (BTCUSD) and Ethereum (ETHUSD). Pre-Fed anxiety also adds to the market's inactivity. However, both Bitcoin and Ethereum posted mild gains early Wednesday as they attempt to recover from previous losses in a quiet session.
After the BoJ-induced volatility, traders focus on the Fed’s upcoming actions, with most expecting no change in the current monetary policy. This is largely due to recent softer US data raising concerns about a potential recession, which could challenge the Fed’s hawkish stance. If this is confirmed by the FOMC statement or Fed Chair Powell, it could put more downward pressure on the US Dollar and boost Gold further. EURUSD, GBPUSD, and USDJPY may continue their recent pullbacks, while the Antipodean currencies could recover if market sentiment improves.
May the trading luck be with you!
