The market remains quiet early Tuesday as traders await important U.S. data, the last major economic report for 2025, before the year-end holiday season slows momentum. The U.S. Dollar remains under pressure due to expectations of a dovish Federal Reserve and mixed economic signals, mainly from downbeat data and varying statements from Federal Open Market Committee (FOMC) members. Geopolitical risks, like the ongoing Israel-Iran tensions and the unresolved Ukraine-Russia conflict, also challenge market optimism.
Comments from U.S. Treasury Secretary Scott Bessent added uncertainty to Fed policy. He suggested that Fed Governor Steve Miran may return to the White House early next year and questioned inflation targeting accuracy. He also hinted at growing support for changing the Fed’s dot plot approach.
Geopolitical developments included President Donald Trump stating that the U.S. may sell or keep seized Venezuelan oil, with implications for global crude prices. Prime Minister Netanyahu reaffirmed Iran’s military and nuclear activities as a significant threat, and U.S. Vice President JD Vance expressed skepticism about a quick peace deal between Israel and Palestine.
In U.S. economic data, the Chicago Fed National Activity Index for September improved to -0.21, while Federal Reserve Governor Stephen Miran reiterated his dovish stance, noting less need for another rate cut. Mark Zandi of Moody's Analytics warned that U.S. inflation might be higher than reported, as the official Consumer Price Index (CPI) data may be flawed.
Precious metals continue their rally, with Gold nearing US$4,500 and Silver climbing just under US$70. Meanwhile, the Japanese yen and Chinese yuan both strengthened as defensive currency moves. The yen's rise followed verbal intervention from Japan’s top currency officials, pushing USDJPY down to around 156.30.
Japanese stocks rose, supported by a pullback in domestic bond yields, with the Topix reaching 3,422, close to its recent record high. However, the Nikkei struggled, particularly due to concerns over AI-linked stock valuations. Sentiment improved following news that Goldman Sachs plans to invest US$5.1 billion in Japan’s corporate deals market over the next decade.
In Japan, Finance Minister Satsuki Katayama stated that Japan has a "free hand" to take action against currency moves misaligned with economic fundamentals, which helped lift the yen.
In Germany, a study showed that U.S. tariffs have hit German auto exports the hardest, with a nearly 14% drop in exports in the first three quarters of 2025, despite a better agreement on tariff rates between the U.S. and the European Union.
In China, the People’s Bank of China set its USDCNY fixing at 7.0523, the weakest value in 15 months, signaling the bank’s efforts to prevent rapid yuan appreciation. Despite this, the yuan strengthened past 7.03 per dollar, driven by broader U.S. Dollar weakness.
The Australian dollar gained ahead of the December Reserve Bank of Australia (RBA) meeting minutes, which showed discussions about possibly raising interest rates in 2026 if inflation risks remain. Though the RBA maintained its data-dependent approach, the tone was still hawkish. The minutes from the Reserve Bank of Australia’s December meeting emphasized inflation risks and left open the possibility of tightening.
Canada’s November Producer Price Index rose 6.1% year-on-year, slightly higher than expected.
In currency markets, the U.S. Dollar Index (DXY) fell for the second day in a row, boosting EURUSD and GBPUSD, while USDJPY experienced a two-day losing streak. AUDUSD and NZDUSD also rose for the second day, and USDCAD dropped. U.S. Crude Oil stalled after two days of gains, while Gold and Silver reached new record highs. Cryptocurrencies remained flat, and stock markets edged higher.
EURUSD rose to its highest level in a week, marking its second consecutive day of gains, mainly driven by U.S. Dollar weakness. This comes as European Central Bank (ECB) officials appear divided on future interest rate decisions and the economic outlook. Despite tensions between Europe and Russia over Ukraine, as well as strained political relations with major economies, these issues have been largely overlooked, allowing the Euro to extend its rally.
Monday’s unimpressive UK GDP couldn’t stop the GBPUSD bulls from hitting an 11-week high, amid softer USD. Also likely to have favored the Cable pair might be the concerns surrounding the dovish Fed and the BoE’s resistance to cut the rates further, after recent rate reductions.
USDJPY sellers benefit from the Japan meddling signals and hawkish BoJ concerns, as well as stronger Japan Treasury bond yields, more so amid USD weakness. Notably, the year-end inaction might have stopped the Yen pair bears of late.
AUDUSD continues to rise despite dovish minutes from the Reserve Bank of Australia (RBA), while NZDUSD also stays strong for a second day, despite mixed signals from the Reserve Bank of New Zealand (RBNZ) and weak New Zealand data. Even China’s efforts to prevent an economic recession haven’t stopped buyers of both pairs. Meanwhile, USDCAD drops for the second consecutive day, as U.S. Crude Oil prices rise due to geopolitical concerns and hawkish Bank of Canada (BoC) expectations.
Amid market uncertainty and a weaker USD, gold and silver prices reached all-time highs, despite quiet trading due to the year-end holiday mood. Strong institutional demand and mixed geopolitical news helped support the strength of both metals and prevented further declines in crude oil prices.
While most markets benefit from a softer USD, cryptocurrencies are struggling to stay firm as traders await fresh clues. Despite strong moves in U.S. industries and support from Trump, major cryptocurrencies have underperformed, raising doubts about the sustainability of the crypto sector.
On the other hand, Starlink, owned by SpaceX, reported its global customer base has grown to 9 million, showing strong demand for its satellite internet services. The company is expected to unveil its IPO soon, drawing attention to tech stocks, which saw gains on Monday. U.S. tech stocks also benefited from Nvidia’s plans to ship AI chips to China, easing concerns about export restrictions. This boosted broader market sentiment, with the Dow Jones, S&P 500, and Nasdaq all reporting intraday gains of nearly 0.50%.
Tuesday’s economic calendar will feature key U.S. data, including ADP Employment Change, Durable Goods Orders, Consumer Confidence, Industrial Production, and U.S./Canada GDP. Tensions between Israel and Iran, along with FOMC hints and updates from Trump, will also be in focus.
With potential year-end consolidation, the U.S. Dollar could weaken further, especially if the data support Fed rate cuts. However, this might not benefit cryptocurrencies and equities much, though they could end 2025 on a slightly positive note. Tech news could provide a boost to Wall Street and offer some support to risk assets.
May the trading luck be with you!
