Market sentiment is tense ahead of high-stakes talks between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy, with discussions focusing on U.S.-backed guarantees and EU-led boots on the ground. Former President Donald Trump has urged Zelenskyy to show flexibility, suggesting that Ukraine may need to cede some territory if he wants to end the war sooner. Trump also stated that Ukraine won’t join the North Atlantic Treaty Organization (NATO) but could receive security guarantees outside of NATO, while emphasizing a friendly stance with Putin. However, he also warned of sanctions if Russia doesn’t respect U.S. intervention.
France, Germany, and the United Kingdom (UK) are reportedly open to sending troops, but the U.S. is firmly ruling it out, which could lead to divisions within the Western alliance. Putin has offered to hold the peace talks in Moscow, while the White House is reportedly considering Budapest, Hungary, as a potential location.
U.S. Treasury Secretary Bassent remains optimistic about ongoing talks with China and the overall economic situation. She also advocated for more short-term Treasury bond issuance to support stablecoins, which must be backed by ultra-safe, liquid assets such as Treasury bills (T-bills). Bassent confirmed plans to raise tariffs on India due to its purchases of Russian oil and emphasized that the U.S. is pushing back globally against digital services taxes. Additionally, U.S. Commerce Secretary Gina Raimondo stressed the need for semiconductors to be produced in the U.S. for financial security.
Meanwhile, U.S.-mediated talks between Syria and Israel are being held in Paris to discuss regional stability, while North Korea’s Kim Yo Jong has dismissed South Korea as a diplomatic partner. China is preparing to showcase its military might during the Victory Day (V-Day) parade on September 3 in Beijing, which will feature 45 troop contingents, new aircraft, hypersonic weapons, and large-scale mobilization using Beidou satellite navigation technology.
Federal Reserve (Fed) Governor Michelle Bowman voiced her support for further rate cuts, as she voted for them in the latest Federal Open Market Committee (FOMC) meeting. She also discussed the need for Federal Reserve staff to gain a better understanding of cryptocurrencies. Meanwhile, the Atlanta Fed’s GDPNow growth estimate for the third quarter (Q3) was revised down to 2.3% from 2.5%. U.S. housing data showed mixed results, with housing starts declining but building permits improving.
The Reserve Bank of New Zealand (RBNZ) cut its official cash rate by 0.25%, in line with market expectations. However, the meeting minutes indicated a more dovish stance, hinting at a possible 0.50% rate cut due to concerns over growth, output, and the labor market. As a result, the New Zealand Dollar (NZD) dropped to a four-month low.
U.S. American Petroleum Institute (API) crude oil inventories showed a larger-than-expected draw, but oil prices struggled to rise due to concerns that Russian oil might return to the market. Canada’s inflation data eased, and the Bank of Canada’s preferred inflation gauge softened, weighing on the Canadian Dollar (CAD).
In the financial markets, the U.S. Dollar Index (DXY) edged higher, while gold struggled at its lowest level since August 1. Equities drifted lower, with EUR, GBP, and AUD continuing their three-day losing streak. USDCAD remained mildly bid, reaching its highest levels in three months following a sharp jump. USDJPY bucked the trend with a two-day losing streak, driven by the Japanese Yen's (JPY) safe-haven status. Cryptocurrencies are recovering after heavy losses over the past two days, with the rebound supported by comments from Bassent and the Fed’s Bowman.
EURUSD and GBPUSD both fall for a third straight day, weighed down by broader U.S. Dollar strength, market uncertainty, mixed UK inflation data, fears of European Central Bank (ECB) rate cuts, and political tensions. However, USDJPY drops for the second consecutive day, despite the stronger U.S. Dollar and weaker Japan trade balance data, as the JPY retains its safe-haven appeal and expectations of potential Bank of Japan rate hikes.
AUDUSD reflects its status as a risk barometer, pressured by the uncertainty around the Ukraine-Russia conflict and China’s military plans, while overlooking the recent increase in the odds of no further rate cuts by the Reserve Bank of Australia (RBA) after strong job data and the RBA’s readiness to pause further rate cuts.
Meanwhile, USDCAD holds firm at a three-month high, facing a double burden from weak crude oil prices, softer Canadian inflation data, and U.S.-Canada trade tensions. The Loonie pair saw its largest daily gain in five weeks after Canadian Consumer Price Index (CPI), Bank of Canada (BoC) CPI, and core CPI data eased, while crude oil remained under pressure at its lowest level since early June, despite higher-than-expected inventory draws from the American Petroleum Institute (API).
Although the RBNZ delivered a 0.25% rate cut as expected, the dovish tone in the meeting minutes and comments from Governor Hawkesby suggested further rate cuts ahead. Some policymakers even supported a 0.50% rate cut, raising concerns over growth, output, and the labor market. Despite higher inflation projections compared to May, these signals put additional downward pressure on the New Zealand Dollar (NZD). As a result, NZDUSD dropped to its lowest level since mid-April, falling over 1.0% and marking its biggest decline in four months.
Gold rebounds from the bottom of a four-month rising wedge bearish chart pattern, ending a four-day losing streak at its lowest level since August 1. However, the recovery lacks momentum as market caution persists and the U.S. Dollar continues to edge higher.
Meanwhile, WTI crude oil hovers at a 2.5-month low after a three-day losing streak. Crude oil buyers recently responded to a higher-than-expected weekly inventory draw from the American Petroleum Institute (API) and mixed geopolitical headlines. This helped the energy market consolidate previous losses ahead of the high-stakes Zelensky-Putin meeting, the upcoming FOMC Minutes, and the official U.S. weekly inventory data from the Energy Information Administration (EIA).
Bitcoin (BTC) and Ethereum (ETH) halt their two-day slump, bouncing off their lowest levels in over two weeks. The latest recovery may be tied to statements from Bassent and Fed Governor Michelle Bowman regarding stablecoins, as well as policymakers’ openness to purchasing cryptocurrencies if allowed.
Meanwhile, equities drifted lower after disappointing results from Home Depot and concerns about the technology sector, highlighted by Bassent’s comments on Nvidia and worries about the ongoing U.S.-China technology conflict.
With key events like Target’s pre-market quarterly results, the FOMC Minutes, and ongoing discussions about the Zelenskyy-Putin meeting's details, along with the U.S. weekly oil inventory data from the Energy Information Administration (EIA), traders are on edge today.
Given that two policymakers supported heavy rate cuts in the latest FOMC meeting, today’s release could weigh on the U.S. Dollar if those cuts are confirmed, potentially setting the stage for a dovish outcome at Jackson Hole. However, Fed Chair Jerome Powell is unlikely to take a dovish stance, meaning market consolidation ahead of his speech on Friday could weaken the U.S. Dollar. This could give riskier assets like cryptocurrencies, equities, and antipodean currencies a chance to recover some recent losses. Still, a strong recovery seems unlikely, and any negative surprise from the FOMC minutes would likely boost the USD, especially given its safe-haven status amid geopolitical tensions.
May the trading luck be with you!
