Fed's Caution and Trump's Policies Drive Mixed Markets

The EUR/USD pair rallied on Monday as mixed messages from Federal Reserve officials left markets uncertain about the path of monetary policy, while traders looked ahead to Chair Jerome Powell’s speech on Tuesday and key PMI releases on both sides of the Atlantic.

Comments from Fed officials highlighted growing divisions within the central bank. Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem and Cleveland Fed President Beth Hammack struck a more hawkish tone, warning against prematurely easing policy amid lingering inflation risks. Richmond Fed President Thomas Barkin adopted a more neutral stance, noting that tariff costs remain modest and economic uncertainty is beginning to ease. By contrast, Fed Governor Stephen Miran sounded dovish, describing current policy as “very restrictive” and arguing the neutral rate is closer to 2%, well below prevailing levels.

Across the Atlantic, Bundesbank President and ECB Governing Council member Joachim Nagel said the euro’s current valuation was not a concern. Meanwhile, Eurozone consumer confidence improved in September, rising to -14.9 from -15.5 in August and beating expectations of -15.3.

Geopolitical risks also resurfaced after Estonian Prime Minister Kaja Kallas accused Russia of repeatedly violating European airspace, warning that Moscow was testing European security. The Kremlin dismissed the allegations as baseless. With traders awaiting Powell’s remarks and fresh data, the focus now shifts to flash PMIs due this week from both the U.S. and Europe.

Gold surged to a fresh all-time high during Asian trading on Tuesday, supported by dovish signals from the Federal Reserve and heightened geopolitical tensions. The precious metal later entered a phase of consolidation as traders grew cautious in the face of overbought conditions and a generally positive tone across equity markets, which limited further immediate gains. Still, expectations of easier Fed policy and persistent safe-haven demand suggest that any corrective pullback may remain shallow.

The Fed’s first rate cut since December, along with signals of more easing ahead, has fueled expectations of a steeper policy path than officials project, pressuring the dollar and lifting gold. At the same time, geopolitical tensions continue to underpin safe-haven demand.

The war in Ukraine has intensified despite ongoing diplomatic efforts, with both Kyiv and Moscow accusing each other of deadly drone strikes on civilian targets. NATO members Estonia, Poland, and Romania have alleged repeated violations of their airspace by Russian aircraft, charges Moscow has denied. In the Middle East, conflict between Israel and Hamas has escalated, with renewed rocket attacks and Israeli strikes in Gaza fueling investor anxiety.

Against this backdrop, gold remains underpinned by a combination of dovish Fed expectations and geopolitical uncertainty. Traders now turn their attention to Fed Chair Jerome Powell’s speech later on Tuesday.

Oil prices edged lower on Monday as concerns about rising supply overshadowed geopolitical risks in the Middle East and Russia.

Market sentiment remained weighed by expectations of an oversupplied global market. Iraq, OPEC’s second-largest producer, confirmed that exports have risen under the group’s supply agreement and forecast September shipments at 3.4 to 3.45 million barrels per day (bpd). Kuwait reported crude production capacity at 3.2 million bpd, its highest in over a decade.

While lower borrowing costs typically support fuel demand, Fed officials signaled little urgency for further cuts given persistent inflation and a still-strong labor market.

Geopolitical tensions failed to provide lasting support. In the Middle East, developments surrounding the recognition of a Palestinian state by several Western nations added to regional friction, while in Eastern Europe, Estonia accused Russian fighter jets of violating its airspace. Neither situation, however, disrupted oil supply flows.

Separately, Iraq has given preliminary approval to resume pipeline exports from its semi-autonomous Kurdistan region through Turkey, according to sources.

The US 500 closed at a fresh record high on Monday, fueled by gains in big tech as optimism around artificial intelligence and strong iPhone demand lifted investor sentiment.

Nvidia gained more than 3% after announcing plans to invest up to $100 billion in OpenAI as part of a long-term expansion of computing capacity. Apple also rallied to an eight-month high following an upward revision to its stock price outlook on expectations of solid iPhone sales.

Federal Reserve officials struck a cautious tone on further easing. Several policymakers reiterated that inflation remains above target and that there is limited room for additional rate cuts without risking overheating. Their remarks came ahead of a busy week that will include a speech by Chair Jerome Powell, PMI data, a final reading on second-quarter GDP, and Friday’s release of the Fed’s preferred inflation measure, the PCE price index. Core PCE is expected to remain above the 2% annual target, with markets also watching for any inflationary impact from higher trade tariffs.

Earnings season continues this week, with chipmaker Micron due to report after Tuesday’s closing bell. Results from Apple supplier Jabil Circuit and consulting firm Accenture are set for Thursday, while investors remain focused on how artificial intelligence spending is influencing both hardware demand and professional services.

The technology sector is also assessing the impact of a new $100,000 annual visa fee for H-1B workers announced by the Trump administration, a move that could affect hiring for major tech firms. Elsewhere, Snap shares surged after the company confirmed plans to launch consumer-ready Spectacles in 2026.