The US dollar extended its decline for a second consecutive session as renewed optimism over potential Federal Reserve rate cuts overshadowed lingering concerns about US–China trade frictions. Risk sentiment found support after Fed Chair Jerome Powell reaffirmed that the central bank remains on course to deliver another quarter-point rate cut later this month, citing growing signs of labour market weakness.
Powell’s dovish tone reinforced expectations that the Fed will maintain an accommodative stance through the year. Swap markets now price in roughly 125 basis points of additional easing by the end of 2026, reflecting mounting investor conviction that policymakers will continue cushioning the economy amid tightening financial conditions and reduced government activity due to the ongoing shutdown.
Gold Surges to New Record as Easing Bets Deepen
Gold climbed to a fresh all time high as traders positioned for a prolonged cycle of US monetary easing. The metal’s relentless ascent has been underpinned by expectations that lower real yields and a weaker dollar will continue to fuel demand for hard assets.
The Fed’s pivot back to easing mode gives gold further strategic appeal, highlighting that uncertainty over key data releases including inflation and employment figures delayed by the government shutdown is amplifying the safe haven narrative.
Trade Frictions Linger, But Market Focus Remains on Policy
While Powell’s remarks set the tone for global markets, US–China trade tensions resurfaced after both sides escalated rhetoric over technology exports. President Donald Trump’s warning that Washington may halt cooking oil trade with China.
In response, China strengthened its currency defense, setting the daily yuan fix below 7.10 a clear signal that Beijing is seeking to project economic resilience amid renewed confrontation. The move underscores China’s effort to stabilize financial sentiment and assert control over market expectations.
Still, US Trade Representative Jamieson Greer struck a more conciliatory tone, suggesting that heightened export tensions could soon ease following constructive talks between the two sides. Trump, speaking from the White House, sounded cautiously optimistic, saying, “We have a fair relationship with China, and I think it’ll be fine. And if it’s not, that’s OK too.”
SARACEN MARKETS VIEW
- Macro Focus: The market narrative is shifting decisively toward monetary easing as the Fed acknowledges labour market softness and reduced data visibility due to the shutdown.
- Currency Outlook: Dollar weakness is likely to persist near term as dovish Fed rhetoric collides with improving risk sentiment.
- Commodities: Gold remains the preferred hedge in an environment defined by slower growth, fiscal uncertainty, and policy divergence.
- Equities: Any renewed US–China tension may trigger short-term pullbacks, but policy support remains a key stabilizer for risk assets.
Traders face a complex but opportunity rich landscape a softer dollar, a data blackout, and a dovish Fed are setting the tone for markets. For now, policy expectations outweigh trade fears, but with Washington and Beijing back in focus, volatility could return at any moment.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.