Risk sentiment improved on Monday and stayed firm into early Tuesday as traders grew hopeful about progress on the U.S. government shutdown and a possible easing of U.S.-China trade tensions ahead of a scheduled meeting in Malaysia. However, caution persisted before Friday’s U.S. Consumer Price Index (CPI) release and President Donald Trump’s announcement of potential 155% tariffs on China.
Weekend reports of a high-level U.S.-China meeting in Malaysia boosted optimism for a possible deal, driving strong demand for risk assets. The Nasdaq hit a record high, supported by steady buying throughout the day. Additional momentum came from White House official Kevin Hassett’s comments suggesting a shutdown deal could be reached this week.
Gold was the standout performer, fully recovering from Friday’s drop to reach a new all-time high before easing slightly. Early buying was modest, but North American traders drove a strong rally, indicating Friday’s decline was likely option-related.
In the foreign exchange market, activity was muted. Improved risk appetite supported several currencies, but optimism over a potential U.S.-China deal also strengthened the U.S. Dollar.
Oil fell to its lowest level since May, touching $56.35 before rebounding by $1.15. Market attention remains on potential oversupply as OPEC continues high output, partly offset by ongoing Ukrainian attacks on Russian infrastructure.
President Trump reiterated tariff threats against China, saying, “A lot of countries took advantage of the U.S., and they can’t anymore. China’s paying 55% and could face 155% by November 1 unless we make a deal.” He added that both nations have “a very good relationship” and will meet in South Korea soon to work out a mutually beneficial agreement.
The U.S. Treasury proposed additional tariffs of up to 100% on Nicaragua and restrictions on CAFTA-DR benefits, citing actions that burden or restrict U.S. commerce.
Federal Housing Finance Agency (FHFA) Director William Pulte confirmed the Trump administration is “opportunistically evaluating” a public offering for Fannie Mae and Freddie Mac, potentially by the end of 2025, to end their government conservatorship dating back to 2008.
A proposed $20 billion private bank loan for Argentina’s President Javier Milei remains on hold, as lenders including JPMorgan and Goldman Sachs seek a U.S. Treasury guarantee before extending credit to the “virtually bankrupt” nation.
In Japan, new Prime Minister Sanae Takaichi began forming her cabinet, while the Japanese Yen weakened.
Talking about Europe, Germany’s tax revenue rose 2.6% in September, but the Finance Ministry warned that weak economic momentum, driven by declining exports and stagnant growth, will limit future fiscal gains.
In the UK, Chancellor Rachel Reeves is set to announce a major deregulation plan at the Regional Investment Summit in Birmingham, aimed at simplifying corporate reporting for 100,000 firms and saving nearly £6 billion annually.
New Zealand’s September trade balance stood at -1,355 million NZD, compared with -1,185 million NZD previously.
Against this backdrop, the U.S. Dollar Index (DXY) extended its three-day winning streak, while gold fluctuated near its all-time high after Monday’s rebound. The Euro (EUR), British Pound (GBP), and Japanese Yen (JPY) each posted a three-day losing streak against the dollar, while the Canadian Dollar (CAD), Australian Dollar (AUD), and New Zealand Dollar (NZD) also weakened. West Texas Intermediate (WTI) crude extended its four-day decline after hitting a new low since early May.
On Wall Street, all major indexes closed over 1.0% higher, while cryptocurrencies slipped after gains over the weekend and on Monday.
The U.S. Dollar’s recovery, combined with mixed market sentiment and concerns over Germany’s economic transition, continues to pressure the EURUSD, which extends its losing streak to a third day. Similarly, the GBPUSD falls for the third consecutive session, despite optimism over UK Chancellor Rachel Reeves’ plan to unlock £6 billion annually by cutting unnecessary red tape. However, worries about the upcoming November budget, uncertainty over the Bank of England’s next move, and mostly weak UK data continue to weigh on the pound.
Meanwhile, the USDJPY rises for a third straight day, supported by challenges to the Bank of Japan’s rate hike outlook after Sanae Takaichi, a supporter of former Prime Minister Shinzo Abe, became Japan’s new Prime Minister. The pair also benefits from improved risk appetite, as its risk-barometer status drives further upside.
The AUDUSD ends its two-day winning streak as uncertainty over the U.S.-China trade deal grows, recent data dampens optimism about Australia’s economy, and the U.S. Dollar remains strong. The NZDUSD also declines amid a broadly cautious market mood and continued concerns over China’s outlook.
Meanwhile, the USDCAD climbs for a second straight day, supported by falling prices of Canada’s key export, West Texas Intermediate (WTI) crude oil, which has dropped to its lowest level since early May and is on a four-day losing streak at press time. Expectations ahead of today’s Canadian inflation data are also contributing to the pair’s gains.
Even as spot gold (XAUUSD) hovers near its all-time high (ATH) early Tuesday, it remains on track for a tenth consecutive week and third straight month of gains. Markets continue to favor the precious metal amid broad uncertainty, expectations of lower interest rates, and strong physical demand from China and India — the world’s two largest gold consumers. On Monday, gold rallied sharply, reversing Friday’s pullback from the ATH, as improving risk sentiment outweighed the stronger U.S. Dollar.
West Texas Intermediate (WTI) crude oil remains under pressure at its lowest level since early May, extending a three-day losing streak. Prices are weighed down by concerns over weaker energy demand from China, higher OPEC+ production, and expectations that sanctions on Russia and Iran may be eased amid hopes of improving geopolitical relations that previously limited their oil exports to the West.
Elsewhere, Bitcoin (BTC) halts its three-day winning streak, while Ethereum (ETH) posts intraday losses after Monday’s Doji candlestick pattern.
On Wall Street, major indexes rose more than 1.0% each, supported by broad risk-on sentiment driven by optimism over resolving the U.S. government shutdown, anticipation of key economic data, easing U.S.-China tensions, and mostly upbeat third-quarter earnings.
Looking ahead, European Central Bank (ECB) President Christine Lagarde’s speech, Canada’s inflation data, and other key qualitative factors are set to drive market activity before Friday’s U.S. inflation release. Investors will also closely monitor U.S. third-quarter (Q3) earnings, progress in U.S.-China trade talks, developments on the U.S. government shutdown, and tensions between Ukraine and Russia.
Against this backdrop, the U.S. Dollar may maintain its recent strength, while gold and equities are expected to remain resilient. However, cryptocurrencies could give back some of their earlier gains.
May the trading luck be with you!
