Risk sentiment stays slightly negative early Tuesday as markets wait for key U.S. data amid mixed trade and geopolitical headlines and uncertainty over the Federal Reserve’s (Fed) next move. The lack of conviction keeps major currencies and commodities subdued, allowing Gold to pause despite softer Treasury yields and a weaker U.S. Dollar.
On Monday, sentiment improved slightly during the initial trading hours in New York, before retreating, after Donald Trump said Ukraine ceasefire talks are closer than ever, citing positive discussions with European leaders, Ukrainian President Volodymyr Zelensky, and Russian President Vladimir Putin, while Germany’s Friedrich Merz also sounded unusually optimistic. Still, traders remain cautious after past false starts.
U.S. data were mixed, with the New York Empire State Manufacturing Index for December falling to a three-month low of -3.9 versus 10.9 expected and 18.7 previously, while the December National Association of Home Builders housing market index printed 39, matching expectations. Federal Reserve Governor Stephen Miran said prices are once again stable and policy should reflect that. Federal Reserve Bank of New York President John Williams said labour market risks have risen while inflation risks have eased, strongly supporting the recent rate cut, while Federal Reserve Bank of Boston President Susan Collins said she supported the cut but called it a close call.
The EUR and GBP remain pressured by cautious risk tone, while the JPY strengthens after Japan’s preliminary December Purchasing Managers’ Index showed modest growth. The S&P Global Flash Japan Composite PMI eased to 51.5 from 52.0, staying in expansion for a ninth straight month, with services slowing to 52.5 while manufacturing remained in contraction at 49.7, though at its mildest pace in around 18 months. The data support expectations for gradual policy normalization by the Bank of Japan (BoJ).
Meanwhile, the U.S. has suspended a recently agreed technology partnership with Britain, increasing policy risk around cross-border tech cooperation. According to the Financial Times (FT), the U.S. administration halted progress on the so-called Tech Prosperity Deal last week, despite it being unveiled earlier this year to deepen cooperation in artificial intelligence, quantum computing, and civil nuclear energy. The UK officials have confirmed the suspension, though neither side has formally commented, and the move may weigh on investment sentiment in advanced-technology sectors exposed to geopolitical bargaining.
In China, the USD/CNY fell to levels last seen in late September 2024 despite the People’s Bank of China (PBoC) setting the daily fixing above model estimates. China Securities Times reported policymakers are debating whether to set a 2026 growth target around 5% or a more flexible 4.5%–5.0% range, reinforcing expectations of pragmatic policy support amid a tougher global backdrop.
The Australian dollar softened before stabilising after December flash Purchasing Managers’ Index data showed slower but still resilient growth. The S&P Global Flash Composite PMI eased to 51.1 from 52.6, a seven-month low but extending the expansion to fifteen consecutive months. Services slowed to 51.0 due to competition and weaker export growth, while manufacturing improved to 52.2 on firmer demand and better export orders. Analysts at Commonwealth Bank of Australia (CBA) and National Australia Bank now expect a Reserve Bank of Australia (RBA) cash rate hike at the 2–3 February 2026 meeting, with National Australia Bank (NAB) also forecasting another hike in May 2026. Separately, Westpac consumer sentiment fell sharply by 9% to 94.5 in December, slipping back below the neutral 100 level.
The New Zealand dollar remained heavy after November Food Price Index data showed a 0.4% month-on-month decline, though prices remain elevated year on year. New Zealand Fiscal projections show no return to a budget surplus over the next five years, with net debt peaking at 46.9% of Gross Domestic Product.
The New Zealand Debt Management Office cut near-term bond issuance to NZ$35 billion for the 2025/26 fiscal year from NZ$38 billion, easing immediate supply pressure while maintaining a heavier medium-term outlook.
The Canadian dollar remains steady, with USDCAD subdued despite falling oil prices.
Crude oil drops for a fourth straight session to its weakest level since October 21, pressured by hopes that progress in Ukraine ceasefire talks could eventually ease sanctions on Russian oil.
Cryptocurrencies stay under pressure, with Bitcoin and Ethereum trading near two-week lows for a third consecutive day, while Strategy, formerly MicroStrategy, fell alongside Bitcoin, raising concerns over leveraged exposure.
Equities remain weak, with Asia-Pacific stocks lower following a soft Wall Street lead. Major U.S. indices closed lower, with the NASDAQ down for a third straight session. Broadcom shares fell more than 5% despite beating earnings and revenue expectations and issuing strong guidance, as investors focused on slightly weaker margins.
Overall, currency performance shows an indecisive U.S. Dollar, a firmer Japanese yen, mild weakness in the EUR and GBP, continued pressure on the AUD and NZD, a steady CAD, and ongoing softness across cryptocurrencies and global equities amid cautious risk sentiment.
EURUSD snaps its four-day winning streak as buyers pause ahead of key preliminary December Purchasing Managers’ Index (PMI) data from the European Union (EU), Germany, and the U.S., alongside U.S. monthly employment data and Retail Sales. The pair had found support on Monday from stronger European Union (EU) industrial production and an upbeat German Wholesale Price Index (WPI), helped by a softer U.S. Dollar (USD).
Elsewhere, GBPUSD remains under pressure as it absorbs the impact of the U.S.–UK trade rift and a cautious tone ahead of the UK and the U.S. employment data, along with other major U.S. releases.
Meanwhile, USDJPY weakens as yen bulls draw support from the Japanese yen’s (JPY) traditional safe-haven appeal and stronger domestic data that reinforce the Bank of Japan’s (BoJ) rate hike bias, in contrast to ongoing dovish concerns around the Federal Reserve (Fed).
Sour sentiment weighs on AUDUSD and NZDUSD even as Reserve Bank of Australia (RBA) rate hike concerns combine with mixed New Zealand data, leaving both currency pairs on a four-day losing streak, possibly due to their close ties with China and their role as risk barometers.
In contrast, USDCAD edges higher, brushing aside softer prices for Canada’s key export, crude oil, as it draws support from a hawkish Bank of Canada (BoC) bias, optimistic political developments in Canada, and expectations of potential Canadian trade deals with major economies.
Gold records its first daily decline in five sessions, pulling back from a seven-week high set last week, as markets position ahead of top-tier U.S. data. Mixed Federal Reserve (Fed) commentary and fading hopes of a Ukraine–Russia peace deal reduce the metal’s safe-haven demand. At the same time, ongoing challenges in China and India, two of the world’s largest Gold consumers, continue to test buyers, though these factors have struggled to gain traction recently. Despite today’s pullback, the move is unlikely to threaten Gold’s broader bullish trend.
Hopes of Russian oil returning to global markets, driven by the potential Ukraine–Russia peace deal, combine with energy demand concerns to pressure crude oil, often referred to as black gold.
Meanwhile, Bitcoin (BTC) and Ethereum (ETH) extend losses for a third straight day amid broad cryptocurrency market pessimism ahead of year-end consolidation, following a strong two-year bullish trend.
Elsewhere, Wall Street benchmark indices closed with modest losses, which weighed on Asia-Pacific equities, mainly as concerns around Broadcom dragged technology stocks and broader risk assets lower.
Tuesday’s economic calendar is packed, featuring U.S. and U.K. employment data, U.S. Retail Sales, German and European Union (EU) ZEW Sentiment figures, and December Purchasing Managers’ Index (PMI) readings for major economies. With the market leaning toward a dovish Federal Open Market Committee (FOMC) bias and the U.S. Dollar (USD) struggling to rebound, softer U.S. job, activity, and spending data could push the Greenback lower.
A weaker USD may give major currencies and the Australian dollar (AUD) and New Zealand dollar (NZD) some upside, but cryptocurrencies and equities could remain under pressure due to broad risk aversion and weak technology shares.
Notably, the Gold price is likely to remain firmer, despite potential intraday loss due to the market’s consolidation ahead of the key data/events.
May the trading luck be with you!
