Risk aversion dominated Tuesday’s trading with stocks falling, gold hitting record highs, and Treasury yields dropping as the record US trade deficit underscored tariff concerns, while oil rebounded on Middle East tensions between Israel and Yemen.
But late-session optimism surged when Treasury Secretary Bessent and Trade Representative Greer announced plans to meet Chinese Vice Premier He Lifeng in Switzerland, triggering a dollar recovery ahead of Wednesday’s pivotal Fed decision, where rates are expected to remain unchanged despite ongoing economic uncertainty.
Here are headlines you may have missed in the last trading sessions:
Headlines:
- Australia building permits for March: -8.8% m/m (-1.2% m/m forecast; -0.3% m/m previous)
- Hong Kong Monetary Authority sold HKD to defend the currency’s peg to the U.S. dollar
- China Caixin services PMI for April: 50.7 (50.7 forecast; 51.9 previous)
- Swiss unemployment rate for April: 2.8% (2.9% forecast; 2.9% previous)
- Conservative leader Friedrich Merz becomes German Chancellor after a historic loss in the first round of voting
- France industrial production for March: 0.2% m/m (0.1% m/m forecast; 0.7% m/m previous)
- Euro area HCOB services PMI final for April: 50.1 (49.7 forecast; 51.0 previous)
- Germany HCOB services PMI final for April: 49.0 (48.8 forecast; 50.9 previous)
- U.K. S&P Global services PMI final for April: 49.0 (48.9 forecast; 52.5 previous)
- SNB Chairman Schlegel doesn’t rule out negative interest rates if needed
- Euro area PPI for March: -1.6% m/m (-1.2% m/m forecast; 0.2% m/m previous); Annual PPI at 1.9% (2.4% forecast; 3.0% previous)
- Canada balance of trade for March: -C$0.51B (-C$6.9B forecast; -C$1.52B previous)
- U.S. balance of trade for March: -$140.5B (-$137.1B forecast; -$122.7B previous)
- Canada Ivey PMI for April: 47.9 (50.2 forecast; 51.3 previous)
- Treasury Secretary Scott Bessent said the U.S. is negotiating with 17 major trading partners, with potential trade deals announced as early as this week
- U.S. American Petroleum Institute showed a draw of 4.49M barrels (vs 2.50M-barrel decline expected) in U.S. commercial stockpiles for the week ending May 2
- U.S. President Trump announced plans to introduce pharmaceutical tariffs “over the next two weeks”
- U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer to meet with Chinese officials in Switzerland
- Israel says it has disabled Yemen’s main airport with airstrikes against rebels
- India launched air strikes on Pakistan and Pakistan-administered Kashmir
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The major assets reflected a lean towards risk aversion, as trade war jitters and geopolitical tensions kept investors on edge.
The S&P 500 slipped 0.8% with uncertainty swirling around President Trump’s aggressive tariff push. European stocks followed the same path, and Germany’s DAX initially took a hit after conservative leader Friedrich Merz failed to win enough votes to become chancellor on the first try, though he succeeded in the second round.
A record-setting U.S. trade deficit of $140.5 billion for March showed that businesses had rushed to import goods ahead of new tariffs, casting a shadow over growth prospects. Treasury yields edged lower as investors sought safety, with the 10-year yield falling to 4.30% after a strong bond auction.
WTI crude oil rebounded sharply from four-year lows and hit $59.00 as tensions escalated between Israel and Yemen. India’s military strikes against Pakistan added to the geopolitical stress. Gold surged to record highs near $3,430 as Chinese buyers returned after their Labor Day holiday and safe-haven demand picked up. Bitcoin also pushed higher, breaking above $95,000 despite the pullback in stocks.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
After a pop higher during the Japanese market open, the Greenback was weighed down by China’s disappointing Services PMI release, defying expectations that poor Chinese data might boost the dollar as a safe haven.
This downward pressure intensified during Asian trading and continued through the European session despite brief stabilization attempts following Eurozone PMI data. The U.S. trade balance figures, showing a record $140.5 billion deficit, further weighed on the dollar as traders assessed the economic impact of ongoing trade tensions.
Throughout most of the day, each modest recovery attempt was quickly overwhelmed by selling interest, with particular weakness visible against the Japanese yen as risk aversion dominated market sentiment. The Hong Kong Monetary Authority’s intervention to prevent HKD appreciation highlighted the broad-based dollar weakness.
The most dramatic move came near the end of the trading day when news broke that Chinese Vice Premier He Lifeng would meet with U.S. officials in Switzerland. This announcement triggered a sharp upward spike in the dollar, reflecting sudden optimism that trade tensions might ease, and erasing much of the day’s losses in a matter of minutes.
Upcoming Potential Catalysts on the Economic Calendar:
- Germany factory orders for March at 6:00 am GMT
- France balance of trade for March at 6:45 am GMT
- Euro area HCOB construction PMI for April at 7:30 am GMT
- U.K. S&P Global construction PMI for April at 8:30 am GMT
- Euro Area retail sales for March at 9:00 am GMT
- U.S. MBA mortgage applications for May 2 at 11:00 am GMT
- U.S. EIA crude oil stocks change for May 2 at 2:30 pm GMT
- U.S. Federal funds rate at 6:00 pm GMT
- U.S. Fed press conference at 6:30 pm GMT
- New Zealand RBNZ financial stability report at 8:00 pm GMT
- Japan BoJ monetary policy meeting minutes at 11:50 pm GMT
Traders are in for another busy economic calendar with construction PMIs, Euro Area retail sales, and German factory orders scheduled for release during the European session.
In the U.S., traders will zero in on the Fed rate decision and Powell’s presser for clues on rate cut timing, with potential USD volatility spilling into commodities and risk sentiment.
As always, stay nimble and don’t forget to check out our Forex Correlation Calculator when taking any trades!