Global Markets on Edge Ahead of Fed's September Decision

EUR/USD stretched its winning streak into a fifth consecutive session early on Monday, hovering near 1.1700 during Asian trading hours. The pair continues to find support as the US Dollar weakens on growing expectations that the Federal Reserve will move toward an interest rate cut at its September meeting. Trading volumes are likely to remain subdued today as US markets are closed for the Labor Day holiday.

Data released Friday showed that US inflation accelerated in July, partly reflecting the impact of tariffs introduced under President Donald Trump. Despite the uptick in inflation, Federal Reserve officials have struck a dovish tone. San Francisco Fed President Mary Daly said on Sunday that policymakers stand ready to lower interest rates, noting that tariff-driven price pressures should prove temporary. Fed Governor Christopher Waller echoed this sentiment last week, reaffirming his support for rate cuts and signaling openness to a more aggressive move if labor market data continues to soften. Such remarks have fueled rate-cut speculation, putting additional pressure on the Dollar while lending near-term support to the Euro.

On the European side, European Central Bank Governing Council member Olli Rehn emphasized on Sunday the need for flexibility in monetary policy amid ongoing inflation uncertainty. He highlighted downside risks from a stronger Euro, falling energy prices, and easing core inflation, alongside the negative effects of global trade tensions. Rehn stressed that rate decisions will remain data-dependent and assessed on a meeting-by-meeting basis.

Gold prices resumed its upward momentum in Asian trading on Monday, climbing toward $3,470—a fresh five-month high. The yellow metal rebounded strongly after last week’s profit-taking pullback, buoyed by expectations that the Federal Reserve will deliver an interest rate cut at its September meeting.

Friday’s US inflation report reinforced the dovish outlook, with markets increasingly convinced the Fed may act this month despite consumer prices remaining above target. Meanwhile, trade uncertainty resurfaced after a US court ruled that President Donald Trump’s global tariffs were largely illegal, further supporting safe-haven demand.

Stronger-than-expected US economic data briefly limited gold’s advance last week. Even so, inflation pressures persisted, with the Fed’s preferred gauge—the core Personal Consumption Expenditures (PCE) Price Index—remaining elevated in July.

According to the CME FedWatch Tool, traders now assign nearly an 89% probability of a 25 basis-point cut this month, compared with 85% before the inflation release. Growing geopolitical and economic risks, combined with a softer Dollar, could further underpin demand for the precious metal in the near term.

Oil prices retreated on Friday as markets weighed softer US demand and the prospect of higher output from OPEC and its allies in the coming months. Traders remain cautious ahead of next week’s OPEC+ meeting, where the group is expected to provide further clarity on its production strategy. The alliance has been accelerating output hikes in an effort to regain market share, raising expectations of a looser supply balance in the months ahead.

In the United States, the summer driving season winds down with Monday’s Labor Day holiday, marking the end of the year’s peak demand period for the world’s largest oil consumer. At the same time, tariff uncertainty continues to weigh on market sentiment, with analysts warning that President Donald Trump’s trade policies could slow global growth and dampen fuel consumption into 2025.

Still, the demand picture is not entirely bearish. Government data last week showed stronger-than-expected US crude inventory draws, a sign that consumption in freight, industrial, and export-driven sectors remain robust. Some analysts suggest that the tighter-than-expected supply in the US could offset part of the bearish pressure from OPEC’s production increases.

Geopolitics also remains a key focus. Investors are closely monitoring India’s stance on Russian oil imports after Washington doubled tariffs on Indian goods to as much as 50%. Despite pressure from the US, traders anticipate India will continue sourcing discounted Russian crude, helping Moscow maintain export flows while securing India’s growing energy needs.

With global supply dynamics shifting and demand signals diverging, oil markets are likely to remain volatile in the weeks ahead.

U.S. stocks closed lower on Friday, pressured by a slide in technology shares led by Nvidia. Despite the day’s weakness, the US 500 still managed to notch its fourth consecutive monthly advance. At the close of trading, the Dow Jones Industrial Average declined 91 points, or 0.2%, the S&P 500 slipped 0.6%, and the Nasdaq Composite dropped 1.2%.

Nvidia shares fell more than 3% as investors continued to assess the risks surrounding U.S. restrictions on chip sales to China. The weakness also comes as Beijing makes progress in reducing its reliance on American semiconductor companies. In contrast, Alibaba gained after reports that the e-commerce giant had developed a new chip designed for AI inferencing. Although the chip is focused on inferencing rather than training—an area where China remains vulnerable—the development highlights Beijing’s commitment to advancing domestic chipmaking capabilities.

On the economic front, data showed that the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures price index, rose 0.3% in July, putting the annual pace at 2.9%, its highest in five months.

In corporate news, Dell Technologies fell after issuing weak guidance for the current quarter, a downbeat outlook that overshadowed stronger earnings results. Marvell Technology also tumbled after disappointing investors with a soft revenue forecast, while Caterpillar lost ground as the heavy-equipment maker warned of higher tariff-related costs in 2025.  Affirm Holdings soared after the buy-now-pay-later company topped revenue estimates and delivered an optimistic forecast, supported by resilient consumer demand.