The risk market remained sluggish early Tuesday as traders struggled to maintain optimism over U.S.-China trade developments amid mixed geopolitical news and concerns about the Federal Reserve’s (Fed) decision to pause rate cuts in December.
The Fed’s stance has been a topic of debate, with Governor Lisa Cook describing the December meeting as “live” for a possible rate cut but not guaranteed. She noted that keeping rates too high could harm the labor market, while cutting too much might unsettle inflation expectations. San Francisco Fed President Mary Daly, also open to further cuts, warned that reaching 2% inflation at the cost of millions of jobs would be a negative outcome. Meanwhile, Governor Stephen Miran, pushing for deeper cuts, highlighted the risk of overly restrictive policies, while other regional Fed officials expressed discomfort with further easing.
Markets are currently pricing in a 60% chance of a 25 basis point rate cut in December, with upcoming jobs and inflation data likely to determine the outcome.
In the U.S., October’s ISM manufacturing index came in at 48.7, below expectations of 49.5, signaling ongoing uncertainty due to tariffs. The final S&P Global U.S. manufacturing PMI for October was slightly higher at 52.5, up from 52.0 in September.
In Japan, Prime Minister Sanae Takaichi announced plans to boost tax revenue through economic growth rather than rate hikes, focusing on strengthening supply capacity and investing in services and infrastructure. The yen weakened briefly to 154.50, its lowest since mid-February, before rebounding after Finance Minister Katayama warned against “one-sided” market moves, bringing it back below 154.10. The U.S. dollar’s strength pressured most G10 and Asian currencies, with the euro falling to its lowest point since August and the Singapore dollar dropping to its weakest since May 12.
The Reserve Bank of Australia (RBA) kept rates on hold, as expected, but adopted a hawkish tone. Policymakers noted persistent inflation pressures and raised inflation forecasts significantly, predicting that price growth will remain above target until the second half of 2026. The Australian dollar (AUD/USD) drifted lower following the RBA's announcement, failing to sustain a small bounce.
In South Korea, consumer prices rose 2.4% year-over-year, driven by higher food and utility costs. Japan’s October manufacturing PMI dropped to 48.2, its lowest in 19 months.
From China, the People’s Bank of China (PBOC) reaffirmed its commitment to economic stabilization, pledging to expand the RMB’s cross-border payment systems and deepen Hong Kong’s offshore yuan market.
In Canada, the S&P Global manufacturing PMI for October came in at 49.6, up from 47.7 in September.
Trading on Monday was subdued, with the firmer U.S. Dollar and mixed risk complex. The U.S. equities began strong, buoyed by gains from Amazon, Tesla, Eli Lilly, and Nvidia, though market breadth remained weak. The S&P 500 ended slightly higher, while the Russell 2000 fell by 0.4%.
Talking about cryptos, Ether fell nearly 9%, briefly dipping below $3,600, after a $100 million DeFi hack on Balancer intensified selling pressure. The token remains 25% below its August high, as traders adjust to a more cautious macro outlook and reduced expectations for Fed rate cuts.
Against this backdrop, the U.S. Dollar Index (DXY) reached a three-month high, rising for the fifth consecutive day. EURUSD dropped to a fresh three-month low, while GBPUSD hit its lowest since early April. USDJPY eased but remained within a four-day range near mid-February highs. AUDUSD extended its five-day losing streak, and NZDUSD tested a three-week low. Meanwhile, USDCAD rose to a three-week high as crude oil ended a two-day rally and Canadian data came in mixed. Bitcoin (BTC) fell to a two-week low, while Ethereum (ETH) hit a three-week bottom, despite following a heavy slump on Monday. U.S. stocks closed with the S&P 500 and Nasdaq Composite in positive territory, while the Dow Jones posted mild losses.
EURUSD and GBPUSD face pressure from a stronger U.S. Dollar and rising concerns over mixed EU data and discussions surrounding the UK government’s budget. As a result, EURUSD slides to a three-month low, while GBPUSD drops to levels not seen since early April.
USDJPY reflects the impact of verbal intervention from Japan’s Finance Minister Katayama and optimism about Japan’s economic outlook, supported by statements from the newly elected Prime Minister. This reinforces the yen's traditional safe-haven status. The pair initially surged to its highest level since February, before pulling back slightly within a four-day range, ending with modest losses.
While stimulus news from China provided some support to the Australian, New Zealand, and Canadian dollars, broad risk aversion and a strong U.S. Dollar, coupled with dovish signals from the Reserve Bank of New Zealand (RBNZ) and Bank of Canada (BoC), weighed on NZDUSD and USDCAD. Notably, USDCAD extended its four-day uptrend, driven by a pullback in crude oil prices, Canada's key export.
Gold prices pull back, reversing the previous day’s corrective bounce and staying below the 21-day EMA for the fourth straight day. The firmer U.S. Dollar, along with month-start market consolidation, is weighing on gold, while concerns over weaker demand from China add further pressure.
Meanwhile, crude oil breaks its two-day winning streak, shrugging off surprise OPEC+ news that it will halt supply increases in early 2026. The market remains focused on fears of declining energy demand due to the U.S.-China trade war and ongoing geopolitical tensions.
Cryptocurrencies lost nearly $102 billion in just five hours of trading on Monday, before recovering some of the losses. Whale selling, a technical breakdown, and month-start market moves contributed to the sharp decline. Some analysts even called the drop a warning sign for a potential future slump, highlighting a reduced risk appetite for digital assets.
Meanwhile, strong earnings from Palantir and news of an Amazon-OpenAI deal helped U.S. equities stay firm, although the Dow Jones ended the day with modest losses.
U.S. Factory Orders, JOLTS Job Openings, and risk-related news will be key for market direction on Tuesday. If U.S. data continues to show weakness, the USD may retrace, posing a challenge to the recently hawkish Fed bias. However, concerns over the U.S. government shutdown and negative risk sentiment could keep the USD firm ahead of Wednesday's key data, including the U.S. ADP Employment Change and ISM Services PMI.
The yen's traditional safe-haven status could allow it to pare some of its recent gains despite a stronger USD. Meanwhile, other major currencies, commodities, and cryptocurrencies may continue to face further losses.
May the trading luck be with you!
