Rising Trade Friction Hits Dollar (13-17 October)

The dollar index slipped below 99 on Friday as renewed trade conflicts between the US and China rattled investors.

President Trump’s comments dismissing the need to meet with China’s Xi Jinping and his intent to raise tariffs on Chinese imports reignited fears of a tariff war. The sentiment report from the University of Michigan showed consumer morale remained steady in October, slightly beating expectations. Meanwhile, gold rallied beyond the $4,000 level, edging close to its record high as safe-haven demand surged.

Fixed Income

US 10-Year Treasury Note: Yield declined to 4.06%, marking a near three-week low. The fall erased earlier gains with renewed trade war fears after Trump threatened a “massive increase in tariffs” on Chinese goods and hinted at canceling his meeting with Xi Jinping.
UK 10-Year Gilt: Held steady at 4.72%, reflecting caution ahead of the November budget. Finance Minister Rachel Reeves faces the challenge of maintaining fiscal discipline while avoiding growth-slowing tax hikes. Inflation is projected to rise to 4%, double the BoE’s target.
Japan 10-Year Bond: Hovered just below 1.7%, close to a 17-year high. The political split between the LDP and its long-time partner Komeito may complicate Prime Minister Takaichi’s policy agenda.
Germany 10-Year Bund: Dropped to 2.63%, the lowest since August 7. Escalating US-China tensions and weak German data pressured yields, while France faced political uncertainty following Sébastien Lecornu’s resignation.

United States Fed Funds Interest Rate

Most Fed officials agreed on moving rates toward a neutral stance, acknowledging rising employment risks.
The Fed cut rates by 25 bps in September to a range of 4.00%-4.25%, its first reduction since December.
About half of policymakers expect two more rate cuts before the end of 2025.
Upside inflation risks persist, keeping further easing dependent on data.

US 10-Year Treasury Bond Note Yield

Yield rose slightly to 4.14% on Thursday after minor declines earlier in the week.
The ongoing government shutdown halted key economic data releases, keeping traders cautious.
The latest FOMC minutes gave limited guidance, though markets still expect two 25 bps cuts this year.
Senate funding efforts stalled, and Treasury auctions showed weak demand.

Eurozone, CPI (YoY, Sep)

Inflation rose to 2.2%, marginally above the ECB’s 2.0% goal.
The rebound stemmed from smaller energy price declines and services inflation at 3.2%.
Core inflation remained steady at 2.3%, the lowest since early 2022.
Food and non-energy goods inflation remained subdued.

United States, JOLTS Job Openings (Aug)

Job openings increased by 19,000 to 7.227 million, matching forecasts.
Gains were led by health care, leisure/hospitality, and retail.
Construction and federal government postings declined.
The South and Midwest added jobs, while the Northeast and West recorded slight drops.
Hires, quits, and layoffs remained broadly stable.

Currencies

Dollar Index: Fell below 99, pressured by tariff war concerns and cautious sentiment.
Euro: Rebounded above $1.16, recovering from a two-month low after Trump’s remarks weakened the dollar. Political focus in France turned to Macron’s choice of a new prime minister.
Pound Sterling: Dropped to $1.328, a ten-week low, on fiscal concerns ahead of the November 26 budget. Tax hike expectations continued to weigh on sentiment.
Japanese Yen: Strengthened slightly to 152.7, rebounding from 153.2 earlier in the day. The breakup of the LDP-Komeito coalition added political uncertainty, pressuring fiscal policy expectations.

Commodities

Gold: Surged above $4,000, nearing the record $4,059. Up 52% year-to-date, on track for an eighth straight weekly gain with demand.
Silver: Traded near $50 per ounce, just below Thursday’s $51.30 record, marking an eight-week rally. Gains were supported by strong demand and supply constraints, with prices up 70% in 2025.
Brent Crude Oil: Fell 3% to $63 a barrel, the lowest since May 30, as Middle East tensions eased and a global surplus lingered. The Israel-Hamas ceasefire framework and rising OPEC+ output added to downward pressure, while Trump’s tariff comments reignited trade concerns.

Market movements reflected a renewed sense of caution as trade tensions between Washington and Beijing resurfaced, unsettling investor sentiment across asset classes. Despite signs of resilience in consumer sentiment and steady inflation data in both the US and Europe, ongoing risks continued to weigh on global markets, reminding investors that volatility may remain a defining theme in the weeks ahead.

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