Fed Autonomy and Asian Elections Drive Global Risk Shift

The EUR/USD pair extends its recovery for a second consecutive session early on Monday building on Friday’s rebound.

The greenback remains on the defensive as safe-haven demand eases following the conclusion of US–Iran talks on Friday, which helped calm concerns over potential Middle East tensions.

Further upside is underpinned by the growing policy divergence between the Federal Reserve and the European Central Bank. Market expectations, reflected in CME Group’s FedWatch Tool, suggest traders are pricing in at least two 25-basis-point rate cuts by the Fed in 2026. These expectations have been reinforced by recent US data pointing to emerging softness in the labor market.

In contrast, the ECB has kept policy steady since concluding a year-long easing cycle in June. Resilient economic growth across the euro area has reduced pressure on policymakers to deliver additional stimulus, lending further support to the single currency and reinforcing the near-term bullish bias for EUR/USD.

That said, traders may remain cautious about placing aggressive directional bets ahead of the delayed release of the US Nonfarm Payrolls (NFP) report, scheduled for Wednesday.

In the absence of major macroeconomic releases from either the Eurozone or the US, the broader fundamental landscape continues to favor the upside, leaving EUR/USD supported as markets await the critical labor market update.

Gold prices rally sharply at the start of the week, climbing to around $5,040 during early Asian trading on Monday. The precious metal extends its rebound amid broad US dollar weakness, heightened geopolitical uncertainty, and sustained buying from global central banks. Market attention now turns to the delayed release of the US January employment report, due on Wednesday.

The US dollar remains under pressure as concerns grow over the independence of the Federal Reserve. Comments last week from US Treasury Secretary Scott Bessent — who declined to rule out the possibility of a criminal investigation into Kevin Warsh, President Donald Trump’s nominee for Fed Chair, should he refuse to cut interest rates — unsettled markets. The episode has weighed on the greenback, offering support to dollar-denominated assets such as gold.

Adding to the bullish momentum, the People’s Bank of China (PBOC) continued to bolster its gold reserves for a 15th consecutive month in January. Official data showed China’s gold holdings rose to 74.19 million fine troy ounces at the end of the month, up slightly from 74.15 million in December. Persistent demand from China — the world’s largest gold consumer — remains a key structural driver underpinning prices.

Geopolitical developments are also influencing sentiment. Iran’s President Masoud Pezeshkian described last Friday’s nuclear talks with the United States as “a step forward,” while emphasizing resistance to intimidation. US President Donald Trump said another round of talks would take place early this week, warning that failure to reach an agreement would carry “very steep” consequences.

Oil prices declined early on Monday after immediate fears of a broader conflict in the Middle East subsided, following renewed commitments by the United States and Iran to continue discussions over Tehran’s nuclear programme. The easing geopolitical tension helped calm investor concerns over potential supply disruptions from the region.

Iran and the US agreed to pursue further indirect nuclear negotiations after both sides characterized Friday’s talks in Oman as constructive, despite unresolved differences. The development reduced concerns that a breakdown in diplomacy could push the region closer to military confrontation, particularly as the US has recently reinforced its military presence in the area.

Markets remain highly sensitive to developments involving the Strait of Hormuz — a critical chokepoint through which roughly one-fifth of global oil consumption passes — heightening anxiety over potential disruptions to exports from Iran and other major regional producers.

Beyond the Middle East, investors are also weighing efforts to curb Russia’s oil revenues linked to its war in Ukraine. On Friday, the European Commission proposed a broad ban on services that support Russia’s seaborne crude exports.

Refiners in India — previously the largest buyers of Russia’s seaborne crude — are reportedly avoiding April delivery cargoes and may continue to limit purchases for longer. The move could also support New Delhi’s efforts to advance a trade agreement with Washington.

US equities rebounded sharply on Friday, recording their best single-day performance since May 2025, as market volatility eased following a turbulent week marked by steep losses in technology stocks and a reassessment of the artificial intelligence trade. The rally pushed the US 30 to a historic milestone.

Technology stocks struggled during the week as investors questioned the scale and timing of returns from massive investments in artificial intelligence infrastructure. Amazon joined Alphabet in raising concerns after forecasting significantly higher capital expenditures.

Amazon said it expects capital spending of roughly $200 billion in 2026, far exceeding market expectations of about $146 billion. The outlook reinforced expectations that Big Tech will continue to aggressively invest in AI, with Amazon, Microsoft, Google, and Meta projected to collectively spend more than $630 billion this year.

While Amazon Web Services — central to the company’s AI strategy — posted a 24% jump in revenue to $35.6 billion, investors reacted negatively to the scale of planned spending amid uncertainty over when those investments will translate into meaningful returns. Amazon shares fell 5.6% on the day, making the stock one of the biggest percentage decliners across the major indexes.

Concerns about the US economic outlook remained in focus. Challenger data showed job cuts in January reached their highest level since the 2009 financial crisis. Weekly jobless claims came in above expectations, while December job openings also missed forecasts.

Although signs of labor market cooling have increased expectations for additional Federal Reserve rate cuts, investors continue to assess the policy outlook under Kevin Warsh, President Donald Trump’s nominee for Fed chair.