The US will impose a 25% tariff on Japanese goods starting August 1. Other countries like Malaysia and South Africa will also face new tariffs. This news caused the US dollar to rally initially but then eased a bit before gaining strength again after more details were released. Reports indicate that around a dozen trade notices will be issued, with five already confirmed. In the financial markets, gold rose by $4 to $3,339, while WTI crude oil increased by $1 to $68.00. The yield on the US 10-year bond climbed by 4.5 basis points to 4.39%, and the S&P 500 index fell by 0.9%. The US dollar gained strength, especially against the yen, which dropped from 144.25 to 146.10. The euro hit a low of 1.1688 before bouncing back to 1.1720. Oil prices, initially affected by OPEC’s production increase, ended up $1 higher due to concerns about production limits. Following the tariff announcement, gold recovered from an earlier $35 decline and ended stronger. Attention is now on the upcoming RBA meeting, with AUD/USD near 0.6500, expecting a 25 basis point rate cut around 12:30 am ET. These market movements illustrate how quickly sentiment can change when fiscal policies seem stronger than anticipated. The rebound in the US dollar hints that investors expect ongoing challenges for trade-dependent economies. The significant drop in the yen suggests investors are preparing for differing policies and potential further interventions. As bond yields rose, particularly with the 10-year reaching 4.39%, it became clear that there is a growing belief that US policies will continue to tighten. This shift in risk appetite affected the equity markets, leading to a dip in the S&P 500. The 0.9% decline indicates that sectors sensitive to interest rates might face challenges in the near term. The $1 increase in crude oil must also be considered. Initially, the rise in OPEC’s production seemed to push prices down, but the recovery shows ongoing concerns about compliance with the new production levels. Markets appear skeptical about execution, not just policy announcements, leading to higher crude prices by the end of the day. Gold’s rebound after a $35 decrease reinforces its role as a safe haven during rapid policy changes. Once the tariffs were fully detailed, there was a noticeable shift back to metals. Though the $4 gain in gold doesn’t seem significant on its own, it reflects repositioning in response to new geopolitical tensions. Attention will now shift to central bank decisions in smaller economies, especially with Sydney leading the way. The market has nearly fully priced in another rate cut, which is why the local currency is nearing 0.6500. Traders dealing with interest rates have been quietly selling during rallies, expecting a modest continuation of the easing cycle, even without strong guidance. There’s a lot to consider, particularly regarding the relationships between interest rate futures, currency pairs, and short-term bonds. Traders are increasingly using volatility to express their macro views. The movement of funds across commodities, currencies, and interest rates suggests that positioning is becoming more tactical than it was just a week ago. Structured products designed to take advantage of widening rate spreads and market shifts are seeing increased activity. With multiple trade announcements expected soon and another rate decision just hours away, we are focusing on the relative momentum across asset classes rather than relying solely on one indicator. Timing entries based on policy signals—rather than headlines—seems more crucial than ever.

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