Last week, Asian stocks tracked Wall Street's gains on expectations that the Federal Reserve will cut interest rates in quick succession, lowering global borrowing costs, easing pressure on bond markets, and weighing on the dollar.

In Asia, stock indices in Japan, South Korea, and Taiwan are at or near record highs, while Chinese stocks hit a 3.5-year high and Hong Kong's reached a four-year high, benefiting from strong expectations for AI-related earnings growth.

This optimism also spread to European markets, with Euro Stoxx 50 futures, FTSE futures, and DAX futures all rising 0.2%. S&P 500 and Nasdaq futures were essentially flat after hitting new highs overnight.

The US Consumer Price Index report, the last major hurdle before the Federal Reserve's rate cut next week, was slightly firm but generally undeterred. Markets still expect a combined 125 basis points of rate cuts over the next five FOMC meetings, with the risk of further cuts below 3%.

Markets continue to price in a 100% probability of a 25 basis point rate cut from the Federal Reserve next week.

The U.S. Treasury market has already reacted in advance, with 10-year Treasury yields falling 20 basis points over the past two weeks, equivalent to a rate cut, as U.S. mortgage rates are linked to them.

In the foreign exchange market, the dollar retreated to 147.40 against the yen, having hit 148.20 in the previous session. The Japanese and U.S. Treasury ministers issued statements on Friday, reiterating that neither country would target a specific exchange rate level in its policies. The euro remained steady at $1.1728, having received some support last Thursday after the European Central Bank held interest rates steady and stated that policy was "well positioned."

In commodities, gold rose 0.5% to $3,654, approaching its record high of $3,675 reached earlier this week. Oil prices came under pressure as the International Energy Agency forecast a record global oil surplus next year and OPEC continued to increase production. Brent crude rose 1.78% to $66.62 per barrel, while U.S. crude rebounded 1.06% to $62.36 per barrel.

Last Week's Market Performance Review:

Last weekend, U.S. stocks fluctuated near record highs, with the three major indexes showing mixed gains and losses. While investors digested inflation and employment data, they focused their attention on the Federal Reserve's interest rate decision next week. The Dow Jones Industrial Average fell 273.78 points, or 0.59%, to 45,834.22; the S&P 500 fell 3.18 points, or 0.05%, to 6,584.29; and the Nasdaq Composite rose 98.03 points, or 0.44%, to 22,141.10, reaching a record closing high for the fifth consecutive trading day.

Gold started the week strongly, as disappointing August employment data continued to negatively impact the U.S. dollar. Gold prices rose over 1% at the start of the week and continued their gains on Tuesday, reaching a new record high above $3,670, supported by continued dollar weakness and escalating geopolitical tensions. Gold entered a period of consolidation after hitting a record high of $3,675. The Federal Reserve's policy decision may determine whether gold has further room to rise, despite being technically overbought.

Silver rose to $42.150 per ounce last week, a 14-year high, as firm expectations of a Fed rate cut next week supported buying. Safe-haven demand further supported precious metals amid ongoing geopolitical tensions. Strong industrial demand from solar, electric vehicles, and electronics kept the physical silver market tight amid ongoing supply constraints.

As traders focused on the Fed's rate cut, the US dollar index retreated after a slight rise last week. This slight rebound followed Thursday's sharp drop, driven by a combination of weak labor market data and a slight pickup in inflation, prompting a recalibration of market expectations for Federal Open Market Committee (FOMC) policy.

With the US dollar index remaining below its 50-day moving average and market expectations for a rate cut stable around the "quarter-point" target, short-term exchange rate movements will hinge on the Fed's policy guidance next week. If the FOMC is highly divided or sends hawkish (tightening) signals, the US dollar index could find support; however, if it sends dovish (easing) signals—especially amid concerns about the labor market—the dollar index's upside could be limited.

After the European Central Bank kept interest rates unchanged at 2%, signaling a more neutral policy stance, the euro fell slightly to $1.1736 during intraday trading, reducing the probability of another ECB rate cut this cycle. The dollar rose 0.27% against the yen to 147.59 yen after the United States and Japan issued statements opposing disorderly foreign exchange market fluctuations.

In addition, the British pound fell 0.03% against the dollar to $1.3566 on news that the UK's July GDP data showed economic stagnation, further weakening short-term market sentiment. The Australian dollar rose against the dollar last Friday, reaching a high of 0.6670, a high not seen since November 2024. The Australian dollar continued to appreciate against the US dollar as weak US jobs data outweighed expectations of higher inflation, reinforcing market expectations for a 25 basis point interest rate cut by the Federal Reserve.

The Ukrainian Security Service stated that last week's attack targeted the port of Primorsk in northwestern Russia, one of Russia's largest oil and fuel export terminals, forcing the overnight suspension of oil loading operations. Oil prices rose as a Ukrainian drone attack disrupted loading operations at a Russian port, overshadowing market concerns about oversupply and the risk of weak US demand. Brent crude oil futures rose $0.62, or 0.93%, to close at $66.99 per barrel, while WTI crude oil rose 1.96% to close the week at $62.36 per barrel.

Bitcoin continued its upward trend at the start of last week, briefly breaking through $116,000 to reach a 19-day high. US CPI inflation for August was broadly in line with expectations, while weekly initial jobless claims unexpectedly surged to a near four-year high. Rising expectations for an interest rate cut fueled the rally as the market awaits the Federal Reserve's decision on September 17th. According to Coingecko data, the king of cryptocurrencies has risen 1.5% over the past 24 hours, extending its gains from Wednesday's breakout from a two-week consolidation range. Bitcoin is currently trading at $115,217, having earlier climbed above $116,300 during trading.

The 10-year US Treasury yield rose nearly 3 basis points to 4.06%, closing Friday just above the five-month low reached the previous session, further fueling market confidence that the Federal Reserve will resume rate cuts next week. Yields across all maturities rose on Friday, led by the 20- and 30-year bonds. Earlier last week, the U.S. Treasury yield curve fell across the board before rebounding: the 10-year Treasury yield briefly dipped to 4.00% before recovering to 4.021%; the 2-year Treasury yield fell to 3.50%; and the 30-year Treasury yield edged down to 4.658%. The bond market remains sensitive to the dual signals of inflationary pressure and labor market weakness.

This Week's Market Outlook:

This week (September 15-19), global financial markets will be bombarded with economic data and central bank announcements, particularly the Federal Reserve's FOMC interest rate decision and Powell's press conference, which will serve as a bellwether for the foreign exchange and gold markets.

Investors are poised for a central bank super week this week. The Federal Reserve is expected to cut interest rates, and attention will be focused on the new "bitmap." The Bank of Canada is expected to cut interest rates by 25 basis points due to weak economic data. The Bank of England is expected to keep interest rates unchanged, but the vote could shake the pound. Amid political uncertainty, the Bank of Japan is expected to remain on hold. Investors anticipate three rate cuts this year.

On the other hand, from China's macroeconomic data to core inflation indicators in Europe and the United States, to central bank decisions from multiple countries, the US dollar index is expected to fluctuate sharply. Major currency pairs such as the euro and yen may see divergent trends. Gold, as a safe-haven asset, may see further gains amid uncertainty. Overall, if the Federal Reserve sends a dovish signal, a weaker dollar will be bullish for gold; conversely, a hawkish tone may exacerbate currency market volatility. Investors should be wary of additional noise from geopolitical events (such as Trump's visit to the UK).

The data wasn't impressive, but volatility was amplified; here are three things to watch for the US dollar next week!

With the release of the latest inflation and labor market data, market expectations for a Fed rate cut next week have further strengthened, accelerating the dollar's weakness. The dollar index is therefore facing further downward pressure.

Although current inflation data appears to be stabilizing, a surge in unemployment claims highlights labor market weakness, and traders are increasingly confident that the Fed will cut interest rates by at least 25 basis points next week. US Treasury yields may find some support around current levels, but unless labor market data stabilizes, the US dollar index could retest the support level of 96.38.

There are three key observations: First, whether core services will show a broad-based slowdown in September and October, particularly high-frequency rental indicators within the housing sector; second, reaffirmation of employment and demand—initial claims are already showing signs of improvement. If the subsequent employment report and retail sales slow simultaneously, this will open the door for deeper rate cuts; and third, whether the price transmission of tariff-related commodity prices will persist.

The risk is that if oil and food prices continue to push the monthly rate of aggregate interest rates within the 0.3%-0.4% range, while the core rate decline fails to meet expectations, the market will lower its bets on the cumulative extent of rate cuts this year, and the dollar's stay below 97.7 may be limited. Conversely, if the core rate falls rapidly and initial and continuing claims rise simultaneously, the front end of the curve will continue to decline, which will be bullish for gold and long-term bonds, and the dollar may experience a second pullback.

From a technical perspective, the US dollar index remains under pressure: 98.00 has shifted from support to resistance. The next key support levels are last week's low of 97.25 and 97.11 (the low of July 24). If this support area is broken, the US dollar index could fall further to 96.38, a near three-year low. Currently, the US dollar index continues to trade below its 100-day moving average (98.60), and bears remain dominant below this critical level.

Will gold break through $3,800 by year-end?

Gold has always been a preferred asset in times of uncertainty, but in 2025, its role is evolving. Investors focus on gold not only for its ability to hedge against inflation but also as a barometer of issues ranging from central bank policies to geopolitical risks. Fluctuations in the gold price often signal significant events beneath the surface. Gold is more than just a safe-haven asset; its price movements also reveal to investors the current state of the global economy and financial markets.

Despite being a non-yielding asset, gold's appeal remains surprisingly strong amidst above-target inflation in many major economies. Furthermore, investors believe central banks may soon be forced to cut interest rates, which could further boost gold prices.

Gold prices have risen by over 38% so far this year, while silver has surged by over 42%—clearly, significant changes have occurred. Gold prices still have approximately 10% room to rise in 2025, with the precious metal projected to reach $4,000 per ounce by year-end.

However, there is a key variable to consider. While precious metals, particularly gold, are primarily viewed as a hedge and safe haven during times of macroeconomic uncertainty, jewelry demand still accounts for a significant portion of the overall precious metals market—40% of gold demand and 34% of silver demand. The direction of jewelry demand remains uncertain.

The Federal Reserve will cut interest rates at its September meeting, the first since December 2024. Gold tends to outperform after a Fed rate cut. Looking back at data from the 1990s, gold and silver prices rose an average of 8% and 6%, respectively, within 60 days of the Fed's rate cut cycle. This is because falling yields significantly increase the competitiveness of non-yielding assets.

Middle East attacks sparked short-term buying in crude oil, but technical pressure remains.

Last week, Israel launched an attack on Hamas leadership in Qatar, briefly boosting crude oil prices. The attack initially pushed the benchmark up nearly 2%, but the gains subsequently pared back. Furthermore, geopolitical risks escalated further: Poland intercepted a drone during a Russian attack on Ukraine—the first time a NATO country has directly intervened in such an operation. Despite the heightened tensions, traders noted that no direct supply disruptions have occurred.

Despite the attention generated by these news, the oil price rally failed to gain momentum. The specter of future oversupply continues to weigh on the market, with Brent crude oil prices down $2.00 so far this month. This suggests that the geopolitical risk premium will be limited in duration unless there is a direct threat to supply.

Beyond geopolitics, there's another political concern: reports indicate that former US President Trump has urged the European Union to impose 100% tariffs on imports from two major countries, including India. These two countries are major buyers of Russian crude oil, and if their crude oil import channels are blocked, it could have a ripple effect on global crude oil flows. However, aggressive sanctions could conflict with inflation concerns and potentially complicate the Federal Reserve's interest rate decisions.

While geopolitical events have provided short-term support for oil prices, the failure to break through key technical levels, coupled with a bearish inventory outlook and increased OPEC+ production, remain under pressure on the overall trend.

Unless WTI crude oil can hold above its 200-day moving average of $66.78, traders are likely to turn to the downside. The market outlook remains bearish in the short term.

Conclusion:

The IMF's warning, the downward revision of employment data, and the Federal Reserve's impending rate cuts paint a complex picture for the US economy. While the Fed's rate cuts offer a glimmer of hope for economic easing, its cautious pace and limited scope suggest that resolving the current predicament will be challenging. Global attention will focus on how the Fed strikes a balance between supporting economic growth and controlling inflation in the coming months. At this critical juncture, whether the US economy can regain momentum remains to be seen.

Thus, grasping uncertainty presents opportunities in both directions. This week, global central bank dynamics and a flurry of data will dominate the foreign exchange market. The Fed's decision is the key variable: a dovish stance could trigger a weak dollar and a "honeymoon" period for gold, while a hawkish stance could amplify volatility risks. Investors should monitor the spillover effects of the international trade situation on gold and remain vigilant to unexpected geopolitical events.

Overview of Important Overseas Economic Events and Events This Week:

Monday (September 15): Eurozone July seasonally adjusted trade balance (€100 million); US September New York Fed manufacturing index; Canada July manufacturing sales (month-over-month rate)

Tuesday (September 16): Australia ANZ Consumer Confidence Index for the week ending September 14; UK July unemployment rate (ILO standard) (%); Eurozone September ZEW Economic Sentiment Index; US August retail sales (month-over-month rate) (%); US August industrial output (month-over-month rate) (%)

Wednesday (September 17): Japan August merchandise trade balance (unadjusted) (billion yen); UK August CPI (year-over-year rate) (%); UK August Retail Price Index (year-over-year rate) (%); Eurozone August harmonized CPI (year-over-year rate) (final unadjusted) (%); US August preliminary building permits (month-over-month rate) (%); US EIA crude oil inventory change (million barrels) for the week ending September 12; Bank of Canada announces interest rate decision

Thursday (September 18): Australia's August employment change (10,000 people); US Philadelphia Fed manufacturing index for September; US initial jobless claims for the week ending September 13 (10,000 people); Federal Reserve FOMC announces interest rate decision and summary of economic projections; Fed Chairman Powell holds monetary policy press conference; Bank of England announces interest rate decision and meeting minutes; US President Trump pays a state visit to the UK

Friday (September 19): UK GfK Consumer Confidence Index for September; Japan's August national CPI annual rate (%); UK August seasonally adjusted retail sales monthly rate (%); UK September CBI retail sales gap; Bank of Japan announces interest rate decision; Bank of Japan Governor Kazuo Ueda holds monetary policy press conference

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