Risk sentiment remained cautiously positive on Wednesday morning as concerns over U.S. President Donald Trump’s mass firing of federal workers during the government shutdown eased. This optimism was supported by expectations of a dovish Federal Reserve (Fed), the absence of major risk events, and the Reserve Bank of New Zealand’s (RBNZ) surprise 50-basis-point rate cut. However, political instability in France and Japan, along with the ongoing U.S. government shutdown, held back sentiment.
CNN reported that the Trump administration changed its plans for federal layoffs, as more Republican lawmakers and officials acknowledged the political risks. The White House is now delaying layoff notices. Trump also decided not to provide financial aid to farmers due to the shutdown, although he and U.S. House Speaker Kevin McCarthy supported backpay for furloughed workers. Trump warned that some furloughed workers might not return if the shutdown persists.
In India, state refiners resumed paying for Russian oil in yuan, spurred by improved relations with China and ongoing sanctions on Russia. This move could increase India’s access to Russian crude but also make it a target for Western efforts to reduce Russia’s oil revenue amid the Russia-Ukraine conflict.
The Atlanta Fed’s GDPNow estimate for Q3 growth remained at 3.8%, while the New York Fed’s consumer survey raised one-year inflation expectations to 3.4% from 3.2%.
Several Federal Reserve officials spoke out: Miran noted that the neutral interest rate is influenced by large population shifts, Kashkari said it’s too early to determine if tariffs will cause persistent inflation, Bostic mentioned AI’s disruptive potential, and Daly stated there’s no evidence yet of mass job losses due to AI.
The Euro faces selling pressure, with speculation that France may hold parliamentary elections before the year’s end, following the resignation of Prime Minister Sébastien Lecornu, according to Lee Hardman of MUFG Bank. Additional pressure on the EURUSD pair comes from broad U.S. dollar strength and challenges facing the Eurozone.
In Japan, the Liberal Democratic Party (LDP) delayed an extraordinary Diet session, scheduled for October 20 or later, after disagreements between new party leader Sanae Takaichi and Komeito leader Tetsuo Saito. This delay will push back the vote for a successor to former Prime Minister Shigeru Ishiba.
Japan’s manufacturing sentiment fell for the first time in four months, primarily due to a slowdown in the auto sector, which is hurt by U.S. tariffs. The manufacturing index dropped from +13 in September to +8 in October. The auto and transport machinery sector saw a sharp drop, reflecting the impact of U.S. tariffs and rising costs.
Japan’s real wages fell for the eighth consecutive month in August, as inflation outpaced nominal wage growth. Real wages dropped 1.4% year-on-year, the largest decline in three months. Although nominal wages rose 1.5%, inflation-adjusted pay continued to fall due to high prices and a 10.5% drop in one-off payments like bonuses.
The RBNZ’s unexpected 50-basis-point rate cut to 2.50%, a three-year low, surprised markets. The central bank’s decision reflects concern about New Zealand’s economic outlook, and it left the door open for further rate cuts.
In Canada, a meeting between President Donald Trump and Canadian Prime Minister Mark Carney produced positive comments. While no details were finalized, Canadian Trade Minister François-Philippe Champagne expressed optimism, with steel, aluminum, and energy being key areas of discussion. Canada’s trade deficit in August was 6.32 billion Canadian dollars, worse than the expected 5.55-billion-dollar deficit.
A private survey of crude oil inventories showed a larger-than-expected build. The UK Maritime Trade Operations (UKMTO) also reported increased GNSS signal interference in the Gulf region from October 3 to 7, disrupting shipping operations near Bandar-e-Pars, the Strait of Hormuz, and Port Sudan.
In tech news, Elon Musk’s AI startup xAI is raising up to $20 billion, with Nvidia investing up to $2 billion in equity and supplying GPUs for xAI’s new Colossus 2 data center. The deal also includes GPU-backed debt from Apollo, Valor, and Diameter. Critics argue that such deals create a loop of capital and revenue among AI companies, which may inflate valuations without contributing to substantial business growth.
Meanwhile, all three major U.S. equity indexes (Dow Jones, S&P 500, and Nasdaq Composite) ended Tuesday’s trading with modest losses, even as both the S&P 500 and Nasdaq set new all-time highs (ATH) earlier in the day.
Amid these developments, a growing number of investors are turning to non-dollar assets like gold and bitcoin as confidence in major currencies wanes. Gold’s rally is driven not by crisis but by fears of U.S. fiscal strain, rising debt, and policy dysfunction—what Wall Street now calls the “debasement trade.”
The U.S. Dollar Index (DXY) reached a two-month high, rising for the third consecutive day and breaking through resistance levels from early August. This supported the U.S. dollar while weighing on the euro, British pound, Australian dollar, Canadian dollar, and Swiss franc. However, gold surged above $4,000, and the yen weakened further.
EURUSD dropped to a five-week low, marking its third consecutive day of losses, while GBPUSD extended its weakness to hit a fresh weekly low. Meanwhile, USDJPY surged to its highest level since mid-February, continuing its five-day upward trend. The broader strength of the U.S. Dollar, coupled with trade and political tensions in Europe and Japan, weighed on the Euro (EUR) and Japanese Yen (JPY). The British Pound (GBP) also faced pressure from weak domestic data and concerns that the Labour government may struggle to satisfy British voters with its upcoming autumn budget in November. UK Prime Minister Keir Starmer is currently in India for trade and political discussions.
NZDUSD experienced its biggest daily drop in three weeks, hitting its lowest point since early April, following a surprise 0.50% rate cut by the Reserve Bank of New Zealand (RBNZ). The larger-than-expected cut, along with the RBNZ’s indication of possible further rate reductions, weighed heavily on the NZDUSD. Policymakers pointed to growing economic concerns in New Zealand, adding further downside pressure on the currency pair.
AUDUSD dropped to its lowest level in a week, falling for the second consecutive day, as the U.S. Dollar strengthened broadly. The decline was also fueled by China’s "Golden Week" holidays, which reduced market activity, and concerns that the Reserve Bank of Australia (RBA) might not be able to prevent further rate cuts despite recent positive data from the country.
Meanwhile, the Canadian Dollar (CAD) struggled to gain traction despite rising crude oil prices and mixed economic data from Ontario. The ongoing U.S.-Canada trade talks failed to lift the CAD, as fears lingered that trade and political differences between the two countries might persist. U.S. President Donald Trump and Canadian Prime Minister Mark Carney recently met in Washington for trade discussions. While the talks continue, Canadian officials have been handling press inquiries, which raised suspicions of unresolved issues.
Despite the strong U.S. Dollar, both Gold and crude oil have remained resilient, with traders showing confidence in non-major currencies. Gold, benefiting from its traditional safe-haven status and heavy buying from China, continues to rally, hitting new all-time highs for three consecutive days, recently near $4,035. Technical factors are also supporting this upward movement.
Crude oil, on a four-day winning streak, has maintained its strength despite a higher-than-expected crude oil build in the private API inventory report. The ongoing rally seems linked to rising geopolitical concerns, a smaller-than-expected OPEC+ supply increase, and China’s ongoing stockpiling of oil.
Bitcoin (BTC) ended its six-day winning streak, falling the most in two weeks, while Ethereum also dropped the most in a fortnight, reversing a two-day uptrend. Both cryptocurrencies were hit by the broadly firmer U.S. Dollar and a pullback in risk assets late on Tuesday.
On Wall Street, mixed risk factors and ongoing discussions around AI investments, along with the stronger U.S. Dollar, weighed on the market. Despite the S&P 500 and Nasdaq reaching all-time highs earlier in the day, both ended the session in the red.
Market players are in for a busy day ahead, with key events and developments set to influence the landscape. The release of the FOMC Minutes, along with speeches from several Federal Reserve officials, will be closely watched. These will be accompanied by ongoing news surrounding the U.S. government shutdown, Trump’s political maneuvers, and global developments in Japan and France, as well as escalating geopolitical tensions surrounding Gaza and Ukraine.
In Europe, the UK's Financial Policy Committee’s statement and minutes, along with a speech from ECB President Christine Lagarde, will add further fuel to the market's activity.
Given these factors, the U.S. Dollar could see continued upside momentum after recently clearing a two-month resistance level, putting pressure on major currencies. However, Gold, equities, and cryptocurrencies may remain supported, maintaining their strength amid market uncertainty and safe-haven demand.
Overall, while the U.S. Dollar is likely to challenge other currencies, commodities, and risk assets like gold and stocks could stay resilient, driven by geopolitical risks, central bank policy insights, and broader market sentiment.
May the trading luck be with you!
