The US dollar fell after reports showed the ISM services index at 49.9, below the expected 52.0, and ADP employment numbers at +37K, down from +110K previously. The Beige Book also indicated a slight decrease in economic activity, raising worries about the US economy. As a result, USD/JPY dropped by 115 pips, and US 10-year yields decreased by 10 basis points to 4.36%. Gold rose by $21 to $3,372, even though WTI crude oil fell by 59 cents, settling at $62.82.

Bank Of Canada Rate Decision

In Canada, the Bank of Canada kept its interest rate steady at 2.75%. Market expectations showed a 26% chance of a rate cut, which helped push USD/CAD to its lowest level since October. The Canadian loonie faced pressure due to falling oil prices, though it saw a slight rise following the Bank’s decision. GBP/USD peaked at 1.3579 before easing a bit. In contrast, EUR/USD reached 1.1434 and held onto its gains. Attention now turns to the European Central Bank’s upcoming decision, with no major changes expected. Discussions about a potential Canada-US trade agreement continue, confirmed in talks involving Trump and Putin. With recent US economic data falling short of expectations, it seems the earlier optimism about a quick recovery might have been overblown. The drop in the ISM services index to its lowest in years indicates decreased demand, suggesting this is not just a temporary issue. Likewise, the ADP report reflects a significant slowdown in job growth, hinting that the overall employment situation might be weakening faster than anticipated, especially in typically stable sectors. As Treasury yields declined by 10 basis points, this shift shows that fixed-income markets are responding to the Federal Reserve’s neutral stance. The 10-year yield now at 4.36% suggests traders are adjusting their rate expectations. The swift drop in the USD/JPY exchange rate was orderly and not just a reaction; it might signal a longer-term trend of USD weakness in the near future.

Gold And Commodity Markets

Gold’s rise underscores how markets are reassessing risk. The $21 gain isn’t merely a response to geopolitical events or speculation. Instead, it points to hedging against economic softness as markets expect policymakers to pause further tightening. With WTI crude oil declining, inflation pressures related to commodities seem to be easing, strengthening this perspective. Policy differences are emerging in various regions. The Bank of Canada’s decision to hold rates steady eased some speculation, at least temporarily. However, the loonie’s brief strength faded as losses in oil prices took precedence. This reaction was not extreme; the currency’s tight connection to energy markets meant many investors had anticipated this outcome. There was increased hedging activity ahead of the meeting, driven by the 26% chance of a rate cut, which played a significant role. Sterling climbed to 1.3579 before slightly retreating. Its rise was notably efficient compared to previous weeks. Meanwhile, the euro maintained its gains better, suggesting that traders are adjusting their positions ahead of the European Central Bank’s decision. Although little is expected in the short term, market participants are beginning to prepare for potential changes in guidance. The geopolitical landscape, particularly the resumed Canada-US trade talks, remains an important backdrop. Engagements between Trump and Putin add complexity, but so far, they have not significantly impacted volatility pricing. Nevertheless, such headlines often resurface unexpectedly, rarely staying limited to rhetoric. Given these developments, careful rebalancing of risk exposure is essential. We’re paying closer attention to rate-sensitive currency pairs, as upcoming data could amplify existing trends. Timing market entries based on fixed-income volatility and cross-asset flows will be especially effective over the next three to four sessions. Create your live VT Markets account and start trading now.

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