Early Monday, market sentiment is challenged by renewed doubts over the Federal Reserve’s future rate cuts, trade discussions between U.S. President Donald Trump and Chinese President Xi Jinping, upbeat U.S. economic data, and mixed geopolitical news. Investors are also cautious ahead of this week’s key data and events, including the preliminary readings of September Purchasing Managers' Indices (PMIs) for major economies, a speech by Federal Open Market Committee (FOMC) Chairman Jerome Powell, and the release of the U.S. Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge.
On Friday, positive signs emerged for trade as President Donald Trump appeared optimistic after a phone call with President Xi, and a Canadian trade official suggested he would soon travel to the United States. This, along with a rally in gold prices, helped the Canadian dollar (loonie) outperform other currencies.
San Francisco Federal Reserve President Mary Daly said that the recent interest rate cut was intended to support the U.S. labor market, which has shown signs of weakness over the past year. Federal Reserve Bank of Minneapolis President Neel Kashkari expressed growing confidence that the impact of tariffs on inflation would be temporary, adding that he was unsure how many more rate cuts would be needed to achieve a neutral policy stance. His comments were interpreted as dovish and fueled expectations for two more rate cuts this year.
President Trump’s recent Federal Reserve appointee, Governor Stephen Miran, argued that falling home prices will drive disinflation and emphasized that the 1.5 million migrants leaving the U.S. is not a one-off event. He plans to provide a full explanation of his dissenting views in a speech on Monday.
The New York Federal Reserve’s GDP NowCast raised its U.S. GDP growth forecast to 2.1%.
In other news, the U.S. Bureau of Labor Statistics postponed the release of its crucial annual report on consumer expenditures, originally scheduled for Tuesday. This report, which is key for future inflation data, will now be rescheduled to a later date.
In China, the People’s Bank of China (PBOC) held its benchmark lending rates steady for the fourth consecutive month, leaving the one-year Loan Prime Rate (LPR) at 3.0% and the five-year loan prime rate at 3.5%. The PBOC also injected 300 billion yuan into the financial system via 14-day reverse repos, marking the first use of this tool in eight months. Additionally, China’s Ministry of Industry and Information Technology unveiled a two-year plan to stabilize the steel sector and reduce overcapacity.
European Central Bank (ECB) policymaker Edward Scicluna stated that interest rates are currently appropriate, with inflation projections just below 2%. He noted that there’s no immediate need to adjust monetary policy unless economic conditions change. ECB officials Mārtiņš Kazaks and Yannis Stournaras echoed this sentiment, agreeing that inflation close to 2% is acceptable and that any further rate cuts would require a major shift in the inflation outlook.
In Japan, Chief Cabinet Secretary Hirokazu Hayashi said that the Bank of Japan (BOJ) is aligning its monetary policies with the government’s goals. Hayashi also mentioned that Japan’s historical aversion to a strong yen has lessened, especially as concerns about potential Fed rate cuts could strengthen the yen, affecting Japan’s export-driven economy. The BOJ also revealed plans to gradually reduce its ¥75 trillion ($507 billion) holdings in exchange-traded funds (ETFs), which initially caused market concerns but reassured investors due to the gradual pace of the reduction.
Reserve Bank of Australia (RBA) Governor Michele Bullock appeared less dovish in her remarks, citing that inflation is under control and the labor market remains resilient.
In contrast, KiwiBank now expects the Reserve Bank of New Zealand (RBNZ) to cut rates by 50 basis points in October and 25 basis points in November due to weak GDP and continued recession risks. They also warned that further cuts to 2% may be needed if economic conditions worsen.
In the oil market, prices dropped on Friday due to concerns about oversupply and weaker demand, despite expectations that the Federal Reserve’s first interest rate cut of the year could trigger more consumption. On Monday, oil prices rebounded, recovering some of last week’s losses as traders assessed the impact of European Union sanctions on Russian supply and Ukraine’s strikes on Russian energy infrastructure. Additionally, Israel’s ground invasion in Gaza and last week’s unexpected draw in oil inventories provided support for oil prices.
Against this backdrop, the U.S. Dollar Index (DXY) rose for the fourth consecutive day, putting pressure on major fiat currencies and cryptocurrencies. However, gold and crude oil stayed firm, while equities in the Asia-Pacific region edged higher due to moves by the PBoC and actions/statements from Japan. Additionally, the European Union reportedly rejected the U.S. proposal to impose heavy tariffs on India and China, adding to cautious optimism early Monday.
EURUSD dropped for the fourth consecutive day, pressured by mixed comments from ECB officials, ongoing geopolitical tensions in the Eurozone, and a broadly stronger U.S. Dollar.
Meanwhile, GBPUSD halted its three-day losing streak but struggled to gain momentum. Traders remained cautiously optimistic after the Bank of England (BoE) meeting, which downplayed concerns over housing and employment. However, sentiment stayed subdued ahead of the UK’s upcoming November budget and this week’s key data.
USDJPY hit a two-week high, boosted by remarks from potential Japanese Prime Minister Hirokazu Hayashi and the Bank of Japan’s (BoJ) move to reduce its ETF holdings. However, the likelihood of consecutive BoJ rate hikes decreased following mixed signals from BoJ Governor Kazuo Ueda last week.
AUDUSD rebounds from a two-week low, ending a three-day losing streak, but struggles to gain momentum despite mostly positive comments from RBA Governor Bullock. The cautious market mood and positioning for upcoming data/events could be the reason.
NZDUSD also recovers from a two-week low, breaking its three-day losing streak, even as KiwiBank forecasts more RBNZ rate cuts. This may be tied to market positioning for the month-end.
USDCAD rises on Friday, boosted by growing chances of a U.S.-Canada trade deal and concerns over further weakness in Crude Oil, Canada’s key export. However, the Loonie pair bounced back on Monday after ending a three-day losing streak.
Crude oil rebounded from a week's low, ending a three-day losing streak, driven by concerns over U.S. oil inventory draws, despite Trump’s push for more drilling, and optimism around increased energy demand from China due to new stimulus and the upcoming holiday season. The rebound was further supported by Israel’s ongoing ground invasion in Gaza, Ukraine’s strikes on Russian pipelines, and the EU’s readiness for additional sanctions on Russia to curb its oil demand and push for peace talks. However, challenges remain with the OPEC+ supply increase, the ongoing Russia-Ukraine war, concerns over weaker demand from global economic slowdowns, and a stronger U.S. dollar.
Gold is benefiting from comments by Bridgewater founder Ray Dalio, who warned that as global debt rises and major currencies face devaluation risks, gold and non-fiat currencies will become more appealing, even amid a stronger U.S. dollar. The precious metal also finds support from a technical level near $3,630, along with increased buying from physical markets, central banks, and ETFs.
Meanwhile, cryptocurrencies started the trading week on a negative note after a volatile week that ended with modest losses. Traders remain cautious ahead of this week’s expected ETF approvals from the U.S. SEC. Bitcoin (BTC) and Ethereum (ETH) are facing challenges from technical signals, lower market participation, and the growing trend of corporate entities diversifying their crypto holdings beyond just BTC and ETH.
Looking ahead, speeches from Fed, BoE, and ECB officials, along with third-tier data from the U.S. and Canada, will fill the calendar. However, the main focus will be on risk factors, especially geopolitical developments and Fed-related expectations, which are likely to shape short-term market moves before the key data/events this week. Traders should prepare for potential further gains in the U.S. dollar, which could put pressure on gold and cryptocurrencies.
May the trading luck be with you!
