Markets stayed steady early Wednesday, reflecting a “calm after the storm” mood as traders reassessed moves after the United States (US) inflation report. Major assets pared gains, but the US Dollar failed to recover.
The US Consumer Price Index (CPI) for July matched forecasts on a month-on-month (MoM) basis but eased on the year-on-year (YoY) measure. The Core CPI — CPI excluding Food and Energy — inched higher for both MoM and YoY readings. While headline data was largely upbeat, details were mixed: services inflation remained firm, while goods inflation softened despite tariff concerns.
These reinforced expectations for interest rate cuts by the Federal Reserve (Fed), with the probability of a September cut rising to 90% from 85% before the data and year-end rate cut expectations increasing to around 60 basis points (bps) from 57 bps.
Fed commentary supported the dovish bias. Richmond Fed President Thomas Barkin told the Wall Street Journal that inflation “won’t be as high as you think” and noted possible pressure on both inflation and unemployment. Kansas City Fed President Jeffrey Schmid urged patience in adjusting the policy rate, while US Treasury Secretary Monica Bessent told Fox Business that the Fed should consider a 0.5% cut in September.
The US federal budget deficit widened to -$291.0 billion versus -$215.0 billion expected, adding downside pressure to the US Dollar. Comments from newly appointed US Bureau of Labor Statistics (BLS) head Antoni — suggesting a suspension of monthly jobs reports — also weighed on the Greenback, though the White House quickly confirmed monthly reports would continue.
Political headlines added further pressure. The White House described the Donald Trump–Vladimir Putin meeting as a “listening exercise” and confirmed it will be one-on-one. Reports also suggested that Trump is considering a lawsuit against Federal Reserve Chair Jerome Powell. On trade, Treasury Secretary Bessent said US–China talks will occur within three months, with tariffs staying in place until progress is made on fentanyl control. China imposed 75.8% tariffs on Canadian canola; Australia may benefit, but cannot fill the supply gap. Reports also suggested US pressure on Japan to increase defense spending.
In currency markets, European Central Bank (ECB) Governing Council member Joachim Nagel said ECB interest rates are “at a very good level,” boosting EUR/USD to its largest daily gain in a week. GBP/USD climbed to a three-week high despite mixed United Kingdom (UK) employment data. USD/JPY failed to gain despite softer USD and dovish Fed bets amid US–Japan trade tensions and weak Japan Producer Price Index (PPI) data. AUD/USD stalled after upbeat quarter-on-quarter wage growth but softer YoY readings. NZD/USD consolidated after New Zealand’s July Electronic Card Retail Sales slowed. USD/CAD regained upside momentum despite strong Canadian Building Permits data, as Crude Oil prices steadied.
Crude Oil remained mildly bid after its largest daily drop in a week, following a surprise weekly inventory build and ignoring the Organization of the Petroleum Exporting Countries’ (OPEC) unchanged 2025 oil demand growth forecast of 1.29 million barrels per day (mbpd).
Gold ended Tuesday with mild gains on a weaker USD, but eased slightly Wednesday amid concerns over China’s demand and no changes to US tariffs on gold bars.
Cryptocurrencies remained firm, led by Ethereum’s strong gains, as investors grew optimistic about buying amid Trump administration support, pro-crypto corporate treasury activity, a softer USD, and stronger sentiment toward risk assets.
On Wall Street, dovish Fed expectations pushed the Nasdaq Composite Index and the Standard & Poor’s (S&P) 500 Index to record highs, while the Dow Jones Industrial Average closed more than 1.0% higher.
USDJPY rebounded to erase the previous day’s losses — its first drop in three sessions — despite a softer US Dollar, as Japan’s Producer Price Index (PPI) declined for the fourth month in a row. Yen weakness was further fueled by a 10.4% year-on-year (YoY) fall in the Yen-based import price index, following a 12.2% drop the month before.
Additional pressure came from reports of White House demands for Tokyo to invest in the United States and boost defense spending, alongside domestic political turmoil after Prime Minister Ishiba’s disastrous national election defeat. On the positive side, Japan’s Reuters Tankan Manufacturing Index improved to +9 in August from +7 in July.
Hawkish remarks from European Central Bank (ECB) policymaker Joachim Nagel, combined with rising dovish bets on the United States (US) Federal Reserve (Fed) after mixed US inflation data, kept EURUSD supported. Sentiment also improved on optimism over a European Union–US trade deal framework that could cut headline tariffs from 30% to 15%. However, political tensions in the bloc — including issues with Russia and backlash from trade talks with Donald Trump — limited upside for the Euro.
Meanwhile, GBPUSD held near a three-week high despite mixed United Kingdom (UK) employment data, supported by the UK–US trade deal allowing softer US tariffs. The previous week’s hawkish rate cut from the Bank of England (BoE) and upbeat policymaker comments also underpinned the Pound Sterling.
The softer US Dollar and the market’s cautious optimism allow the risk-barometer AUDUSD to remain mildly bid after an upbeat day. In doing so, the Aussie buyers also cheer strong Q2 wage growth data at home, and also benefit from the news that China hits Canadian canola with 75.8% tariffs, allowing Australia to try to fill the supply gap.
Meanwhile, NZDUSD remains lackluster as New Zealand Electronic Card Retail Sales for July eased to +0.2% m/m vs. +0.5% prior readings.
Further, USDCAD fails to cheer an improvement in the Canadian Building Permits, to -0.9% from -3.4% expected, amid fears surrounding the U.S.-Canada trade deal and dovish outlook about the Bank of Canada (BoC). It should be noted that the downbeat prices of Crude Oil, despite the latest corrective bounce, also propel the USDCAD prices.
Gold prices held defensive after Tuesday’s mild gains, despite a weaker United States (US) Dollar. Demand concerns from China, a shift toward higher-yielding assets like equities and cryptocurrencies, and easing fears of US tariffs on gold bars weighed on sentiment.
Crude Oil traded near Friday’s two-month low after a steep Tuesday drop, failing to benefit from the Organization of the Petroleum Exporting Countries’ (OPEC) decision to maintain its 2025 global oil demand forecast and the softer US Dollar. A surprise build in US private weekly inventories, fears of weaker demand amid trade war risks, easing geopolitical tensions, and hopes of Russia’s market return if the Russia–Ukraine deal advances also pressured prices.
Unlike the foreign exchange (Forex) market, cryptocurrencies and equities surged to multi-day highs as a softer United States (US) Dollar and growing expectations of a dovish Federal Reserve (Fed) boosted risk appetite. The Trump administration’s crypto-friendly policies and pro-crypto firms’ push to build treasuries — particularly in Bitcoin and Ethereum — also supported gains.
The Standard & Poor’s (S&P) 500 Index and Nasdaq Composite Index hit record highs, driven by broad market optimism, strong technology sector performance, and technical breakouts.
After reacting to the US inflation data, Wednesday’s economic calendar is relatively light, featuring only speeches from second-tier Federal Reserve (Fed) officials and the revision of Germany’s July inflation figures.
However, global markets are expected to stay broadly positive, with potential volatility from key risk catalysts — including developments in US trade deals, Russia–Ukraine ceasefire talks, Israel’s Gaza plan, and the White House’s opposition to North Korea and Iran’s nuclear ambitions.
Additionally, recent pro-cryptocurrency and technology-friendly announcements from the Donald Trump administration have supported risk assets, making them important to monitor for market direction.
May the trading luck be with you!
