Fragile US-China Truce & US Shutdown weigh on Global Risk

The EUR/USD pair extended its losing streak for a fifth consecutive session early on Tuesday, trading near 1.1510 during Asian hours. The Euro weakened as the U.S. Dollar gained strength amid cautious sentiment surrounding the Federal Reserve’s monetary policy outlook for December.

Fed Chair Jerome Powell reiterated last week that a rate cut in December is “far from certain,” emphasizing a data-dependent approach given the current pause in official economic reporting.

The greenback’s strength comes even as the U.S. government shutdown drags into its sixth week, raising economic uncertainty. The ongoing deadlock in Congress over a Republican-backed funding bill has left federal workers unpaid and heightened concerns about potential economic fallout.

On the European front, downside pressure on the Euro may be limited by expectations that the European Central Bank (ECB) will hold rates steady for the remainder of the year. The ECB left interest rates unchanged for the third consecutive meeting in October, as inflation remains close to target and growth data shows modest resilience.

ECB policymakers struck a balanced tone following the October meeting. Francois Villeroy de Galhau remarked that the ECB is in a “good position” after recent policy decisions but noted that stance could change if needed. Similarly, Martins Kazaks, Governor of the Central Bank of Latvia, said that risks to both inflation and growth are now “more balanced,” adding that the ECB should act when necessary but avoid overreacting.

Gold prices held firm on Monday, hovering around $4,000 per ounce, as investors awaited key U.S. employment data this week for clues on whether the Federal Reserve (Fed) will deliver another interest rate cut before the end of the year.

The precious metal has surged 53% so far this year, though it remains down more than 8% from its record high reached on October 20. Analysts view the current stability as a period of consolidation following months of strong gains driven by expectations of lower interest rates and global economic uncertainty.

Market participants are now turning their attention to the upcoming ADP private payroll report due Wednesday, as well as the ISM purchasing managers’ indexes (PMIs) later this week. These releases are expected to offer more insight into the Fed’s next policy steps.

The Federal Reserve cut interest rates last week for the second time this year, but Fed Chair Jerome Powell emphasized that another cut in 2025 is “not a foregone conclusion.”

Non-yielding assets like gold tend to benefit from lower interest rates and periods of economic instability, as they become more attractive relative to fixed-income investments.

In a development that could impact physical demand, China ended a long-standing tax exemption policy for certain gold retailers on Saturday.

Oil prices held steady on Monday as markets digested the latest OPEC+ output increase alongside the group’s decision to pause production hikes in early 2026. Persistent concerns over a potential global supply glut and weak manufacturing data across Asia also weighed on sentiment.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, agreed on Sunday to increase production by a modest 137,000 barrels per day (bpd) in December. However, the group also announced plans to pause further output hikes during the first quarter of 2026.

The International Energy Agency (IEA) last month projected a potential global oil surplus of up to 4 million bpd next year, while OPEC maintained its view that supply and demand will remain largely balanced in 2026.

Fresh business surveys released Monday showed continued weakness across Asia’s manufacturing hubs, adding to concerns about softening oil demand in the world’s largest consuming region.

A strong U.S. dollar also pressured crude prices, making oil more expensive for holders of other currencies.

Meanwhile, U.S. manufacturing activity contracted for an eighth straight month in October, with new orders subdued amid tariff-related supply chain disruptions. The ongoing federal government shutdown has also delayed key economic data releases, complicating policymakers’ outlook.

Separately, geopolitical attention turned to Nigeria, where U.S. President Donald Trump said Washington could consider deploying troops or air strikes to address ongoing violence in the West African nation, a major OPEC member and Africa’s largest oil producer.

The US 500 ended the session slightly higher on Monday, lifted by continued strength in artificial intelligence (AI) shares, led by Nvidia and Amazon, as investors bet that the AI investment boom still has room to run.

AI-related shares once again powered the market higher. Nvidia gained over 2%, while Amazon rose about 4%, though Nvidia later pared gains amid renewed trade concerns.

Ahead of last week’s meeting between President Donald Trump and Chinese President Xi Jinping, U.S. officials — including Secretary of State Marco Rubio — reportedly warned against allowing Nvidia to export its new Blackwell AI chips to China, citing national security risks.

Investors are also awaiting a fresh batch of AI-linked corporate earnings this week. Advanced Micro Devices reports Tuesday, while Palantir Technologies, a data analytics and defense software firm, released results after Monday’s closing bell.

So far, more than 300 S&P 500 companies have reported third-quarter earnings, and over 80% have beaten expectations, according to FactSet.

The ongoing U.S. government shutdown — now approaching record length — has left policymakers and investors without several key data releases, including the nonfarm payrolls report and the Job Openings and Labor Turnover Survey (JOLTS).

The missing data complicates the Fed’s policy assessment ahead of its December 9–10 meeting, with markets now closely monitoring corporate earnings and AI-driven investment trends for clues about the broader economic outlook.