Risk appetite remains positive early Monday after Friday's U.S. inflation data met forecasts, reinforcing a dovish outlook from the Federal Reserve. The market is also optimistic due to reports of a potential U.S.-Israel peace agreement, pending Hamas' approval. Additionally, there's a lack of fresh negative news from the Ukraine-Russia conflict, after a series of drone attacks on Russian energy infrastructure. Traders are also preparing for Friday’s U.S. jobs report during the month-end consolidation. However, concerns about Ukraine using long-range missiles against Russia and fears of a potential U.S. government shutdown are keeping market sentiment in check.
The U.S. dollar is under pressure today, as worries about a government shutdown grow. It weakened during Asian trading, with expectations of further rate cuts by the Federal Reserve. Meanwhile, the euro, pound, and yen strengthened against the dollar, and gold also rose, fueled by geopolitical concerns over the weekend. In Asia, stock markets edged higher following Wall Street’s first positive day in four sessions.
The market's reaction to the Personal Consumption Expenditures (PCE) report was notable. While there are concerns about rising inflation, steady inflation is seen as acceptable. The PCE data came in line with expectations, triggering a rise in stock futures and a slight dip in the U.S. dollar. The Atlanta Federal Reserve’s Q3 GDPNow forecast was also raised to 3.9%, up from 3.3%.
On the global stage, the Trump administration is considering imposing tariffs on chip-related electronics to boost U.S. manufacturing, which could disrupt global supply chains. Meanwhile, Chinese President Xi Jinping is reportedly intensifying efforts to influence U.S. policy on Taiwan, hoping to leverage trade talks with former President Donald Trump to push Washington toward opposing Taiwan’s independence.
In economic news, China’s industrial profits rebounded in August, rising 20.4% year-on-year after a 1.5% decline in July. While this is positive, challenges like weak demand, a struggling property sector, and a fragile labor market persist.
The U.S. and Israel are reportedly close to finalizing a peace deal on Gaza, pending Hamas’ approval. U.S. officials expect terms to be confirmed in a meeting with Israeli Prime Minister Benjamin Netanyahu on Monday.
In Japan, leadership contender Takaichi has hinted at renegotiating trade deals with the U.S., suggesting potential changes in trade policy.
In the U.K., there are signs of a cooling labor market, with online job ads down 1.3% year-on-year in August, the first annual decline since February. However, wages continue to rise by 8.9% year-on-year, placing pressure on the Bank of England to manage inflation risks alongside a slowing labor market. A separate survey from the Confederation of British Industry (CBI) shows firms expect weaker activity in the next three months, driven by rising employer costs, tax concerns ahead of November’s budget, and global uncertainty.
In New Zealand, the Reserve Bank of New Zealand (RBNZ) acknowledged that its aggressive rate hikes from 2021 to 2023 helped reduce inflation. However, a review suggested that earlier or stronger actions might have brought inflation under control sooner.
In the oil market, prices initially fell but later regained some losses. This followed a positive week for oil prices and Friday’s Doji candlestick pattern, which raised doubts about sustaining weekly gains. Reports over the weekend suggested OPEC+ might increase production quotas by at least 137,000 barrels per day (bpd) at its meeting on October 5. Iraq has also resumed crude exports from its Kurdish region, reopening the Kirkuk–Ceyhan pipeline after a two-and-a-half-year hiatus. However, traders remain cautious due to the ongoing Ukraine-Russia conflict, with reports that the U.S. may approve deeper strikes on Russian energy infrastructure.
Amid this, the U.S. Dollar Index (DXY) dropped for the second consecutive day after retreating from a three-week high on Friday. This allowed gold to hit a new all-time high near $3,800, while crude oil remained modestly positive. The U.S. dollar's pullback helped EURUSD and GBPUSD recover some of their earlier losses, while USDJPY posted a two-day losing streak. AUDUSD and NZDUSD also defended Friday’s recovery from multi-day lows, while USDCAD broke a six-day winning streak, aided by firmer crude oil prices, Canada’s key export, ahead of this week’s major data releases. Meanwhile, Bitcoin (BTC) cooled off after its biggest daily jump in five weeks, and Ethereum (ETH) posted mild losses after an upbeat Sunday.
EURUSD and GBPUSD are both rising for the second consecutive day, recovering some of their weekly losses. However, USDJPY continues its retreat from Friday, extending the U.S. Dollar's two-day losing streak. Notably, EURUSD may see more buying pressure compared to GBPUSD, as recent news from the UK and comments from Bank of England officials highlight greater challenges for the pound. On the other hand, USDJPY is weakening due to the broader U.S. dollar pullback, despite concerns that Japan's incoming Prime Minister could push to renegotiate the U.S.-Japan trade deal, potentially disrupting trade optimism in Asia. Additionally, mixed signals around a possible Bank of Japan (BoJ) rate hike continue to weigh on USDJPY.
A slightly positive market mood, encouraging news from China, and a pullback in the U.S. Dollar are driving the recovery in AUDUSD and NZDUSD, both up for the second consecutive day. Meanwhile, the USDCAD posts its first daily loss in six days, partly due to weaker crude oil prices, which are a key export for Canada. Adding to the pressure on USDCAD are concerns that the Bank of Canada (BoC) might pause its rate cuts in 2025.
Talks of OPEC+ output changes, Iraq’s exports to Kurdistan, and the absence of new developments in the Russia-Ukraine conflict, combined with the Israel-Gaza peace deal, are challenging crude oil buyers, especially after Friday’s Doji candlestick. However, ongoing fears of an escalating Ukraine-Russia war, a potential letdown from OPEC+ on output increases, China's stockpiling, and a softer U.S. Dollar continue to support energy buyers, keeping optimism high ahead of significant energy market developments this week.
Gold benefits from market uncertainty and a weaker U.S. Dollar, reaching a fresh record high near $3,815. The surge in gold prices is also fueled by China’s potential move to become the world's top gold custodian and increase its gold holdings. Meanwhile, cryptocurrencies are retreating as traders reassess the weekend news that had driven Bitcoin (BTC) and Ethereum (ETH) higher, alongside the softer dollar.
Latest moves of key assets
On Monday, attention will turn to news from Israel, U.S. shutdown fears, and mid-tier economic data from both the EU and the U.S. The U.S. Dollar could see further weakness if risk sentiment improves, supported by month-end positioning and consolidation ahead of Friday’s U.S. jobs report. As markets digest these developments, Gold and crude oil may continue their upward momentum, unless fresh oil output news or easing geopolitical tensions put downward pressure on energy prices. Ultimately, much will depend on how the market balances optimism with caution ahead of key data releases. As we move into the week, the interplay between economic indicators, geopolitical risks, and market positioning will be crucial in shaping the outlook for risk assets and currencies.
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