Market sentiment stayed weak as poor U.S. data, fading Ukraine–Russia peace hopes, and new tensions around U.S.–Venezuela relations failed to lift confidence. Uncertainty over the Federal Reserve (Fed) rate-cut path, concerns about the Fed’s independence under Donald Trump, and doubts over the next Fed Chair added pressure. Reports said the White House is divided over Kevin Hassett as a possible Fed Chair, a decision closely watched by rates and foreign exchange (FX) markets.
A weaker China demand outlook is raising downside risks for bulk commodities, especially iron ore, and mining stocks into 2026.
In Japan, stronger exports and capital goods orders supported expectations that the Bank of Japan (BoJ) may deliver a 25 basis point rate hike this week. Japan’s exports rose 6.1% year on year in November, led by demand from the U.S. and Europe and a rebound in global semiconductor demand after the U.S. trade deal. Exports to the U.S. rose 8.8%, while shipments to the European Union (EU) jumped nearly 20%, offering modest support to the Japanese yen (JPY).
On Tuesday, the latest non-farm payrolls (NFP) report was unusual, combining October and November headline data while showing only November’s unemployment rate. The unemployment rate rose to 4.6% from 4.4%, pushing market expectations for a March Fed rate cut to 58% from 40%. Average hourly earnings rose 0.4% month on month (MoM) in October but slowed to 0.1% MoM in November, while year-on-year (YoY) growth eased to 3.5%. October NFP slumped to -105K before improving to 64K in November. Retail sales stalled at 0.0% MoM, while S&P Global Manufacturing Purchasing Managers’ Index (PMI) eased to 51.8, Services PMI fell to 52.9, and Composite PMI dropped to 53.0.
White House Economic Advisor Kevin Hassett said there is plenty of room to cut rates, dragging the U.S. Dollar Index (DXY) to a 10-week low. U.S. Treasury Secretary Scott Bessent said Fed Chair selection news could come in early January and said U.S.–China relations remain positive.
The Australian dollar (AUD) remains highly sensitive to iron ore and China sentiment, with softer steel demand, rising global supply, and delayed Chinese stimulus leaving it vulnerable. UBS and Commonwealth Bank of Australia (CBA) warned of weaker growth risks and a dovish policy bias. Westpac pushed back against Reserve Bank of Australia (RBA) hike expectations and sees rates on hold through 2026, which could weigh on AUD if the labour market softens.
In New Zealand, consumer confidence rose to 96.5 in the third quarter (Q3), but the current account deficit widened sharply to NZ$8.37bn. While this may pressure the NZD short-term, a better annual deficit supports the medium-term outlook.
Bank of Canada (BoC) Governor Tiff Macklem said the policy rate is appropriate to keep inflation near 2% during remarks at the Chamber of Commerce of Metropolitan Montréal.
Oil markets turned volatile after Donald Trump ordered a blockade of sanctioned Venezuelan oil tankers, calling Venezuela a foreign terrorist organization. U.S. crude prices jumped above $55.90 per barrel despite ample global supply, while a private American Petroleum Institute (API) survey showed a larger-than-expected crude inventory draw.
In India, the Reserve Bank of India (RBI) was reported to have sold USD/INR heavily to support the Indian rupee (INR). RBI Governor Sanjay Malhotra said the impact of a U.S. trade deal could be around 0.5% of gross domestic product (GDP) growth and signalled that interest rates are likely to remain low for an extended period.
In markets, the U.S. Dollar Index rebounded from a 10-week low, EURUSD and GBPUSD eased, USDJPY bounced from a 10-day low, AUDUSD stayed under pressure, and NZDUSD lost momentum. Crude oil snapped a four-day losing streak, gold rose above $4,300, Bitcoin (BTC) and Ethereum (ETH) remained volatile, Wall Street closed mixed, and Asia-Pacific markets drifted lower.
EURUSD holds above the previous day’s sharp reversal from a three-month high as the U.S. Dollar stages a corrective bounce, with markets positioning ahead of another heavy round of data releases from major economies. A cautious tone before European Union (EU) inflation data and Germany’s IFO Business Climate survey is also weighing on EURUSD.
At the same time, USDJPY is struggling to sustain gains from hawkish Bank of Japan (BoJ) expectations. The pair has stalled its two-day losing streak and rebounded from a one-week low, largely overlooking mostly upbeat Japan trade data.
GBPUSD slips from the highest level since mid-October reached the previous day as traders position ahead of the United Kingdom (UK) inflation data. The Pound Sterling (GBP) is also pressured by reports of a fresh trade dispute between the U.S. and the UK, mixed signals from UK housing, activity, and employment data, and the Bank of England’s (BoE) dovish bias, especially as the U.S. Dollar stages a corrective bounce.
AUDUSD falls for a fifth straight day to its lowest level in over a week as mixed Australian data and ongoing China concerns combine with a rebound in the U.S. Dollar. Fading expectations of a Reserve Bank of Australia (RBA) rate hike are also adding downside pressure to the risk-sensitive pair.
NZDUSD moves in line with AUDUSD, although a hawkish bias from the Reserve Bank of New Zealand (RBNZ) is helping to cushion losses and support Kiwi buyers.
Elsewhere, hawkish remarks from Bank of Canada (BoC) Governor Tiff Macklem and a weaker U.S. Dollar pushed USDCAD to a three-month low in the previous session. The pair, however, rebounded early Wednesday as the U.S. Dollar firmed slightly, largely ignoring a corrective bounce in crude oil prices from their lowest level since 2021.
WTI crude oil slid to its lowest level since early 2021 on hopes of a Ukraine–Russia peace deal and heavy Russian oil selling after months of restrictions. In the process, the black gold ignored a larger-than-expected draw in weekly U.S. oil inventories reported by the American Petroleum Institute (API). However, prices rebounded from multi-year lows early Wednesday as markets consolidated ahead of the official weekly crude oil inventory data from the Energy Information Administration (EIA).
Gold continues to benefit from a softer U.S. Dollar and elevated market uncertainty, holding firm near the highest level since late October, when bulls last tested record highs. Ongoing buying from China and inflows into global exchange-traded funds (ETFs) are supporting bullion prices, even as economic concerns linger in China and India, the world’s two largest gold consumers.
Bitcoin (BTC) closed higher on Tuesday, while Ethereum (ETH) struggled to recover. Both leading cryptocurrencies, however, eased early Wednesday as risk assets softened amid lingering doubts over digital assets and firmer Treasury bond yields.
U.S. stocks closed mostly lower, led by the Dow Jones Industrial Average, while technology stocks helped the Nasdaq finish slightly higher. Waymo, Alphabet’s autonomous driving unit, is reportedly in talks to raise more than $15bn at a valuation near $100bn. A U.S. judge ruled Tesla’s Autopilot marketing was deceptive and recommended a temporary 30-day sales licence suspension, though regulators allowed time to revise wording.
Looking ahead, Wednesday is expected to be less volatile than Tuesday, with no major U.S. data on the calendar. However, UK/EU inflation data, German IFO sentiment, and Fed commentary will shape the day’s economic backdrop.
With the dovish Fed bias and cautious optimism around a potential Ukraine–Russia peace deal putting pressure on the U.S. Dollar, there’s a chance for a corrective bounce in cryptocurrencies and equities. Still, renewed concerns about China and Venezuela, coupled with a weaker performance in technology stocks, could limit risk-on sentiment. A potential U.S. Dollar weakness could benefit GBPUSD, especially if UK inflation data surprises positively and broader market sentiment improves.
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