Market sentiment remains slightly positive early Friday, supported by strong U.S. equity performance and dovish Federal Reserve (Fed) bets, despite hotter inflation data and renewed fears of a trade war. The cautious optimism is partly due to weaker U.S. employment signals and a wider federal budget deficit.
On Thursday, the U.S. Consumer Price Index (CPI) for August rose to 0.4% Month-over-Month (MoM) and 2.9% Year-over-Year (YoY), the highest in seven months. This compares with the previous 0.2% MoM and 2.7% YoY, while market forecasts stood at 0.3% MoM and 2.9% YoY. Meanwhile, the Core CPI (excluding Food and Energy) matched estimates, holding steady at 0.3% MoM and 3.1% YoY. Initial Jobless Claims climbed to 263K for the week ending September 09, the highest since June 2023, versus the revised prior 236K and the market expectation of 235K. The U.S. federal budget deficit widened to $345.0 billion in August, compared with the $285.5 billion expected and the $291 billion deficit in July.
Trade tensions intensified as the Financial Times reported that the U.S. will push the Group of Seven (G7) to impose high tariffs on China and India over Russian oil imports. G7 finance ministers are meeting on Friday to discuss these measures. Separately, Mexico announced 50% tariffs on Chinese cars worth $52 billion, under U.S. pressure. In response, China’s Ministry of Commerce warned that the tariffs would seriously affect Mexico’s business environment and pledged to take “necessary measures” to safeguard its “legitimate rights and interests.” At home, Beijing is weighing a $1 trillion lifeline to help local governments pay overdue private-sector bills. Societe Generale’s Greater China Economist Michelle Lam forecast China’s third-quarter Gross Domestic Product (GDP) growth below 5%, raising calls for more stimulus.
The European Central Bank (ECB) left its monetary policy unchanged as expected, helping the euro snap a two-day losing streak. According to anonymous ECB sources quoted by Reuters, the rate-cut debate is unlikely before December, though policymakers believe no further cuts are needed to achieve the 2% inflation target. ECB President Christine Lagarde highlighted growth concerns in her press conference, which capped the euro’s gains despite her shift of growth risks from negative to neutral.
In Japan, Chief Cabinet Secretary Hayashi confirmed that new sanctions take effect on Friday. These include cutting the Russian oil price cap to US$47.6 per barrel from $60, following a similar European Union (EU) move in July. The package also includes asset freezes and export controls on additional entities in Russia and elsewhere, targeting six in China, two in Turkey, and one in the United Arab Emirates (UAE).
The U.S. and Japan finance ministers reaffirmed their G7 commitments on currency policy, emphasizing that exchange rates should remain market-driven, with interventions limited to disorderly markets and operations disclosed monthly. Japan’s Finance Minister Kato stressed that the joint statement was significant in light of President Trump’s new tariff order, while also clarifying that there were no discussions with U.S. Treasury Secretary Bessent about specific foreign exchange (FX) levels.
In New Zealand, Electronic Card Retail Sales rose 0.7% MoM in August, the strongest since November 2024, compared with 0.2% previously. On a YoY basis, sales rose 0.9%, down from 1.7% previously. The BusinessNZ Manufacturing Index fell back into contraction at 49.9 in August, compared with 52.8 previously and an average of 52.5. NZDUSD failed to react as the U.S. Dollar staged a corrective bounce.
Elsewhere, Reuters reported that Switzerland is exploring ways to ease U.S. tariffs imposed by President Trump. Proposals include boosting investment and production in America, with the Swiss gold industry considering building or expanding refining capacity in the U.S.
On Wall Street, all major indices hit record highs on Thursday, led by the Dow Jones Industrial Average, which gained 1.37%. Adobe shares rose after earnings, while Paramount Skydance (PSKY), Synopsys (SNPS), Alibaba American Depositary Receipts (ADR) (BABA), Tesla (TSLA), Snap (SNAP), and Ford Motor (F) also supported gains.
In currencies and commodities, the U.S. Dollar Index (DXY) steadied after snapping a two-day winning streak on Thursday. EURUSD and GBPUSD pared Thursday’s gains, while AUDUSD touched its highest since November 2024 before easing. NZDUSD retreated after hitting a monthly high, and USDCAD recovered after snapping a two-day winning streak. Crude oil extended losses, dropping toward the 3.5-month low marked last Friday. Gold traded within a four-day range but aimed for fresh record highs. Bitcoin (BTC) hit a three-week high before easing, while Ethereum (ETH) extended gains for a fourth day to reach its highest level since August 28. Asia-Pacific equities edged higher, tracking Wall Street’s strength despite mixed signals from China.
EURUSD and GBPUSD are on track for their second straight weekly gains despite retreating early Friday, likely as markets position for the September 17 Federal Open Market Committee (FOMC) meeting. EURUSD rallied on Thursday after the European Central Bank (ECB) kept benchmark rates unchanged and signaled no further cuts before December, though President Christine Lagarde’s cautious comments later limited the upside.
GBPUSD also advanced as a broadly weaker USD offset the UK’s mixed data releases, which continue to highlight housing and employment concerns, leaving little domestic support for the pound.
USDJPY is set for a third weekly gain as traders scale back expectations of further Bank of Japan (BoJ) rate hikes. Hopes that Japan’s incoming government, including the new Prime Minister, will lean toward easing and stimulus amid employment troubles further challenge the BoJ’s tightening plans. At the same time, easing U.S.-Japan trade tensions has not slowed USDJPY’s momentum.
AUDUSD retreats from the yearly high but eyes the biggest weekly jump since April amid receding dovish bets on the RBA, after the recently upbeat Aussie data, as well as due to the China stimulus hopes and broadly weaker USD.
NZDUSD eases from the monthly peak but stays on the way to posting the weekly gains amid mixed data at home and the RBNZ’s readiness for rate cuts.
Elsewhere, USDCAD bucks the trend while signaling a second consecutive weekly gain, despite falling heavily the previous day. The reason could be linked to the latest slump in the crude oil prices, Canada’s key export, as well as the dovish BoC bias and the US-Canada trade war fears.
Gold is resuming its run-up toward record highs while holding within a four-day trading range after refreshing its all-time high earlier in the week. The latest gains are supported by a softer USD, hopes of Chinese stimulus, and broad market uncertainty. Still, U.S. pressure on India and China—two of the world’s largest gold buyers—to face heavy tariffs over Russian oil purchases is starting to test bullion demand.
Crude Oil, meanwhile, snapped a three-day winning streak on Thursday. The pullback came amid broad market optimism, a lack of global response to recent military actions in Doha and Poland, rising U.S. weekly inventories, and lingering demand concerns. The OPEC monthly report offered no fresh comments on demand worries after announcing a smaller-than-expected output increase.
Bitcoin (BTC) eyes its second weekly gain despite easing from the top of late, while Ethereum (ETH) braces for the first weekly gain in three, tracing a record top in the U.S. equity benchmarks, as market players seem optimistic about the cryptocurrencies amid heavy industry participation and softer USD, as well as dovish Fed bets.
With key data already released this week, a hotter U.S. Consumer Price Index (CPI), higher Initial Jobless Claims, and a wider federal budget deficit, markets lean on dovish Federal Reserve (Fed) bets, weighing on the USD. Attention now turns to next week’s Federal Open Market Committee (FOMC).
Still, today’s University of Michigan (UoM) Consumer Sentiment Index and Inflation Expectations could spark a USD rebound if stronger than expected, especially with geopolitical tensions and trade war fears (U.S. push for higher tariffs on China and India, fresh unrest in Doha and Poland) lurking.
Cryptocurrencies remain firm, with Bitcoin (BTC) set for a second weekly gain and Ethereum (ETH) heading for its first in three weeks, supported by softer USD, dovish Fed bets, and upbeat equity sentiment. This could extend, but with a little momentum and risk a pullback if the market’s fears grow.
May the trading luck be with you!
