The risk complex remains tense as the latest U.S. data reinforces the hawkish outlook following the Federal Open Market Committee (FOMC) Minutes, adding to market nervousness ahead of Fed Chair Jerome Powell’s speech at the critical Jackson Hole Symposium. Further compounding the uncertainty are comments from U.S. President Donald Trump, alleged demands from Russian President Vladimir Putin, and disappointing earnings from key U.S. retailers. These developments helped the U.S. Dollar hit a weekly high, exerting downward pressure on riskier assets such as equities, commodities, and the Antipodean currencies (AUD, NZD).
Trump’s remarks on Truth Social, stating that Ukraine should have invaded Russia to avoid a full-scale war, fueled concerns about a lack of progress in upcoming talks between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin. Additionally, growing uncertainty about the U.S. role in the Ukraine conflict weighed on sentiment, as the White House pushes the European Union (EU) to take on more security responsibility, with a reduced role for the U.S.
Meanwhile, a list of demands from Putin ahead of key talks heightened market fears. Among them were conditions such as freezing the front lines in the Donbas region, preventing NATO membership for Ukraine, and barring Western troops from Ukraine. These demands added to concerns about escalating geopolitical risks.
On the trade front, White House trade advisor Peter Navarro suggested that U.S. tariffs on India could double starting August 27. The European Union-U.S. trade deal, which confirmed 15% tariffs, was unveiled but failed to gain much attention. Geopolitically, China and Pakistan pledged to deepen their ties and upgrade the China-Pakistan Economic Corridor (CPEC). Additionally, China’s Assistant Foreign Minister announced that the Shanghai Cooperation Organization (SCO) summit, led by China and Russia, will take place on August 31 and September 1. The summit will be attended by over 20 heads of government, including Russian President Vladimir Putin, and UN Secretary General António Guterres. North Korean leader Kim Jong Un also praised military officers for overseas operations.
In the economic data, Initial Jobless Claims rose to 235,000 for the week ending August 19, higher than the 225,000 market estimate and the previous week’s 224,000. The Philadelphia Fed Manufacturing Survey for August dropped sharply to -0.3, from 15.9, well below the 6.8 market forecast. Meanwhile, Existing Home Sales for July rose to 4.01 million, exceeding the expected 3.92 million.
More importantly, the preliminary U.S. S&P Global Purchasing Managers' Index (PMI) figures for August supported the U.S. Dollar’s recovery. The Manufacturing PMI surged to 53.3 from 49.8, outperforming the 49.5 market forecast. The Services PMI came in at 55.4, just above the 54.2 consensus but lower than the previous 55.7. The S&P Global Composite PMI rose to 55.4, slightly above the 55.1 reading in July.
Following the data, several Federal Reserve (Fed) officials commented, showing mixed views on the likelihood of a rate cut. Boston Fed President Susan Collins was open to a rate cut due to risks from tariffs and jobs, while Cleveland Fed President Loretta Mester and others expressed uncertainty, making the September FOMC meeting a live event. Kansas City Fed President Jeffrey Schmid, the host of Jackson Hole, maintained a hawkish stance, arguing that there’s no urgency to cut rates with inflation still high and the labor market robust.
Tensions surrounding the Fed’s independence also grew, as the Department of Justice’s Special Attorney called on Fed Chair Powell to dismiss Fed Governor Lisa Cook over allegations of mortgage fraud.
In other data, Japan’s Nationwide Core Consumer Price Index (CPI) rose 3.1% year-over-year (YoY), slightly above the 3.0% expected and lower than the previous 3.3%. The UK’s GfK Consumer Confidence for August improved to -17, better than the expected -20 and the previous reading of -19.
In U.S. equities, Walmart’s second-quarter (Q2) earnings missed expectations, sending its stock lower in pre-market trading. Home Depot also missed earnings per share (EPS) estimates, while Target met expectations but couldn’t hold onto its gains. These weak earnings from major U.S. retailers, combined with tariff uncertainties, reflect broader economic concerns, keeping the Fed focused on data and supporting a stronger U.S. Dollar.
Cryptocurrencies also faced downward pressure, despite some positive developments in the industry. The bond market remained quiet as investors awaited major events.
The U.S. Dollar Index (DXY) rose to its highest level in over a week, on track for its biggest weekly gain in three weeks, snapping a two-week downtrend. This helped push gold prices lower, bringing them closer to a second consecutive weekly loss. The EURUSD and GBPUSD both dropped significantly, while the USDJPY hit a weekly high. The AUDUSD extended its five-day losing streak, and the NZDUSD fell to its lowest level in four months. The USDCAD rose to a three-month high, marking a four-day winning streak. Cryptocurrencies also posted mild losses, while equities showed weakness, with the S&P 500 and Nasdaq both heading for weekly losses. The Dow Jones also looked set for a weekly loss, despite defensive moves.
The EU-U.S. trade deal and recent optimistic comments from European Central Bank (ECB) officials failed to lift the EURUSD, as a stronger U.S. Dollar dominated. This could be due to political concerns in the EU, particularly around the Zelenskyy-Putin meeting and uncertainty about the EU’s role in security guarantees, with the U.S. pushing the responsibility onto the EU.
Similarly, GBPUSD is set for its first weekly loss in three weeks, dropping for the fifth consecutive day. This came despite a slight improvement in the UK’s GfK Consumer Confidence for August to -17, better than the expected -20 and the previous -19. It also ignored strong UK inflation data released earlier in the week.
Meanwhile, USDJPY has hit a new weekly high, continuing its two-day rise and is on track for a weekly gain. This comes despite Japan’s better-than-expected Nationwide CPI, which fuels speculation that the Bank of Japan may consider a rate hike. However, the Japanese Yen's demand for haven status isn't enough to stop USDJPY buyers.
The broader U.S. Dollar strength, cautious market sentiment, and rising geopolitical concerns around China weigh on risk assets. China’s efforts to strengthen ties with Pakistan, Afghanistan, and Kazakhstan, along with plans to sideline the U.S. Dollar within the Shanghai Cooperation Organization (SCO), are adding to the anxiety. This move aims to create a network more favorable to its members, further impacting the risk profile.
As a result, AUDUSD falls for the fifth straight day, reaching a two-month low, while NZDUSD faces additional pressure from the Reserve Bank of New Zealand's (RBNZ) dovish rate cut, dropping to its lowest level since April and marking its fourth consecutive loss.
Meanwhile, USDCAD fails to react positively to a recovery in crude oil prices, ignoring slightly positive Canadian data. The pair remains under pressure from the dovish stance of the Bank of Canada (BoC), trade and political concerns between the U.S. and Canada, and broad risk aversion favoring the stronger U.S. Dollar.
Gold remains under pressure for the second day in a row, heading toward a two-week losing streak as the stronger U.S. Dollar, supported by the Federal Reserve bias and rising geopolitical concerns, outweighs the bullion's haven appeal. Adding to the pressure is the fear that China’s gold demand, one of the world’s largest consumers, may be fading. Additionally, U.S. tariffs on India could hurt demand from another major gold buyer. The market’s growing interest in cryptocurrencies, often referred to as “digital gold,” despite recent pullbacks in Bitcoin (BTC) and Ethereum (ETH) due to the firmer U.S. Dollar, may also be contributing to gold’s weakness as traders look for alternatives with strong 2025 gains.
WTI crude oil appears to be more influenced by concerns over the delayed return of Russian oil to the market, stemming from likely failed Ukraine-Russia peace talks, than by the stronger U.S. Dollar. The recent drop in U.S. weekly oil inventories and OPEC’s forecast of stable energy demand in 2025 may have helped push oil prices higher after a two-day winning streak.
Meanwhile, cryptocurrencies are seeing mild gains due to positive industry news, but they’re still on track for a weekly loss, impacted by the firmer U.S. Dollar and market consolidation ahead of the Jackson Hole Symposium. Additionally, technical breakdowns have contributed to the recent weakness in Bitcoin (BTC) and Ethereum (ETH) prices.
While Canada’s Retail Sales data is on the calendar, market participants will focus on how Fed Chair Jerome Powell defends his data-driven approach in his crucial speech at 10 AM ET during the Jackson Hole Symposium. Despite recent inflation and employment data suggesting minimal chances for a rate cut in September, Powell is known for not relying on immediate data and is unlikely to bow to political pressure. According to the Wall Street Journal, Powell may reverse two major 2020-era policy changes—flexible inflation averaging and a bias toward low unemployment—which could shift the Fed’s stance back toward a dovish tone.
If Powell’s speech doesn’t meet market expectations for a hawkish outlook, the U.S. Dollar could drop, giving Gold a chance to end the week on a positive note. This would likely favor cryptocurrencies, equities, and other major currencies, all of which have fallen this week. However, if Powell adopts a hawkish tone, expect a response from former President Donald Trump on Truth Social, potentially criticizing Powell and raising concerns about the Fed’s independence. But such moves are unlikely to have a lasting impact, given the broader market and political concerns, along with the Fed’s current hawkish stance.
In addition, the details from the Zelenskyy-Putin meeting will be watched closely, as any negative outcomes could further weigh on market sentiment. If tensions rise, the U.S. Dollar is likely to stay strong, continuing to pressure Gold, cryptocurrencies, equities, and other risk assets through the end of the week.
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