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Uh oh — that US growth report yesterday was just a bit too strong for investors’ liking. On the surface, strong GDP should be good news but the problem is, such strong growth doesn’t support further Federal Reserve (Fed) rate cuts, and it could even boost inflation expectations on top of potential tariff-led pressures. Understandably, October rate cut expectations took a hit after the GDP release. The probability of a cut fell from around 94% to below 88%. The US 2-year yield — the best proxy for Fed expectations — rebounded to 3.67%, its highest since early September. The dollar index rallied past its 100-DMA as Fed expectations were reassessed, while major US indices retreated from all-time highs but managed to recover part of the early losses. Dip buyers found a reason to step in — namely, the inflation component, which was more contained than feared, near 2%.

Still, sentiment in Asia is weak this morning, especially in tech-heavy indices. The Korean Kospi is down nearly 3% at the time of writing, while the Hang Seng is 0.65% lower. The Topix is the exception, hitting a fresh all-time high, certainly helped by a rapidly weakening yen. The USDJPY is flirting with 150, supported by a stronger US dollar, easing long-maturity JGB yields, and a softer yen after Tokyo CPI came in below expectations. To note: the USDJPY ends the week confirming a positive breakout above a key Fibonacci level, with the next bullish target near 151.65.

Back to US markets, the risk rally isn’t necessarily over. Today’s core PCE — the Fed’s preferred inflation gauge — is expected to show easing price pressures on a monthly basis. On a yearly basis, core PCE is expected to remain sticky near 3%. Yes, that’s above the Fed’s 2% target, but the Fed has been more tolerant of overshooting lately, pointing to downside risks to jobs. As such, data in line with expectations — or ideally softer — could revive risk appetite. A hotter print, though, would prolong the pause to the risk rally and reinforce the idea that the Fed may stay patient well into next year before cutting.

On FX, EUR/USD slipped below its 50-DMA yesterday, extending its post-FOMC correction on the back of strong US GDP data. A failure to get dovish confirmation from PCE could deepen the downside. Cable fell to 1.3323 and looks set to test the 1.3130–1.3200 area, which includes the 200-DMA and the major 38.2% Fibonacci retracement of this year’s rally. That zone will be decisive: either the bullish trend holds, or we see a medium-term bearish reversal. Political unease and the looming Autumn Budget make sterling look less attractive in October, leaving the EURGBP comfortably supported in the next 4–6 weeks.

In metals, higher yields and a stronger dollar weighed on gold, as investors trimmed dovish Fed bets. Still, gold hasn’t broken down in any meaningful way. Inflation expectations remain anchored, geopolitical risks are simmering and central bank demand continues to underpin the metal. What’s also notable is that gold is holding near elevated levels despite rising real yields — a relationship that historically would have pressured it lower. That suggests gold is no longer just a hedge against rates, but a strategic allocation — an insurance against policy mistakes, market volatility and geopolitical flare-ups. So near-term, price action may stay choppy, but the broader trend remains intact. If today’s PCE shows easing inflation, gold could regain some ground as yields and the dollar soften.

If not, dips still look like buying opportunities, and many investors see the rally having much further to run.

In focus today

In the US, August PCE data is due for release in the afternoon. PCE is the Fed's preferred measure of inflation, and besides prices, the release also sheds light on private consumption volume growth. Earlier CPI and retail sales data pointed towards steady developments on both components.

In Denmark, data on retail spending in August released. Our spending monitor showed a 0.5% m/m increase in real retail spending in August, following a strong 1.2% m/m rise in July. We expect the figures from Statistics Denmark to reflect the same trend, with an increase in August.

Economic and market news

What happened overnight

In the US, President Trump approved the sale of TikTok's US operations, valuing the new company at $14 billion. The deal transfers control of TikTok's algorithm to a US-based entity, with ByteDance retaining less than 20% ownership. While Oracle and Silver Lake are expected to hold significant stakes, concerns persist due to reports suggesting ByteDance may maintain influence through a separate US entity managing e-commerce and branding operations.

Trump unveiled new tariffs, including a 100% levy on branded drugs and a 25% tariff on heavy-duty trucks, citing national security concerns. Details are sparse, but pharma tariffs are waived if the company has started building a US manufacturing plant. The pharmaceutical industry and US Chamber of Commerce criticised the measures, while markets saw declines in pharma and furniture stocks across Asia. The tariffs are set to take effect on 1 October.

What happened yesterday

In the US, jobless claims fell to 218,000 last week (cons: 235,000), Q2 GDP growth was revised higher to 3.8% from 3.3%, driven by a stronger-than-expected rebound in private consumption (+0.61% q/q, pre-revision +0.39%, Q1 +0.15%). Durable goods orders also exceeded expectations. These hawkish data points pushed UST yields higher and put downward pressure on EUR/USD. Meanwhile, the trade deficit narrowed in August (-85.5 billion, from -102.8 billion) as higher tariffs curbed imports, though declining wholesale inventories (-0.2% m/m, cons: +0.2%) suggest imports may rebound if demand holds steady. Fed's Goolsbee was on the wire, noting concerns about persistently rising inflation and expressing unease about prematurely front-loading rate cuts despite slowing jobs data.

In Switzerland, the SNB held its policy rate unchanged at 0% as anticipated. It maintained its stance on foreign exchange intervention, though sight deposit data shows no signs of recent activity. The inflation forecast saw a slight upward revision, but inflationary pressures remain broadly unchanged. This aligns with expectations that the SNB will keep rates steady at 0% moving forward.

In the euro area, credit growth continued to rise in August on an annual basis, while momentum is heading lower. Loans to non-financial corporations (NFCs) increased to 3.0% y/y from 2.8% y/y, and loans to households rose to 2.5% y/y from 2.4% y/y. However, the momentum in credit growth is declining, with the credit impulse (measuring the change in the annual growth rate) dropping to its lowest level in over a year. The credit impulse, which is better correlated with GDP growth, supports our view that economic growth will slow significantly in the second half of the year. We forecast 0.1% q/q growth in both Q3 and Q4 for the euro area.

In Sweden, producer prices fell by 0.7% y/y in August, marking the sixth consecutive month of deflation. This was driven by a sharp drop in capital goods prices, while energy-related products rebounded. Monthly PPI rose by 0.5%, and non-durable goods prices, an indicator of food inflation, continued to decline to 2.5% y/y.

Equities: Sour risk across the board yet again. The better than anticipated initial jobless claims, continuing claims and a revision higher of the US GDP figures which at the face of it should have led to higher equities as well. However, equities lower went as they took the cues from the higher US yields. Only the energy sector posted gains, buoyed by higher oil prices. Both S&P500 and Nasdaq ended 0.5% lower, while in Europe the Stoxx600 was 0.6% lower. Looking beneath the surface, the outlook for better US growth also meant growth stocks outperformance value as well as cyclicals outperformed defensives. Yesterday's price action seems to be a precursor for what the NFP number can do next week, if it comes on the high side; kill the goldilocks narrative.

FI and FX: The greenback had another strong session yesterday after the low jobless claims print which means that the recent uptrend is broken and supports Fed Powell's and Danske Bank's view that the labour market is not in that bad a shape. Rates responded by bear flatten the yield curve as the 2-year yield rose 6bp. The move higher in yields was bolstered by another lukewarm Treasury auction, now in the 7-year segment. EUR/USD set a weekly low at 1.1650, down from 1.1740 pre-jobless claims. USD/Scandies well supported, and we continue to see further upside in USD/SEK which now trades at 9.46.

Daily Pivots: (S1) 1.3900; (P) 1.3925; (R1) 1.3965; More...

USD/CAD's rally continues and the break of 1.3923 confirms resumption of whole rebound from 1.3538. Intraday bias stays on the upside for 1.4014 cluster resistance. Strong resistance is expected from there to limit upside to complete the corrective rise. On the downside, below 1.3884 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 cluster resistance (38.2% retracement of 1.4791 to 1.3538 at 1.4017) holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 (2025 high) at 1.3069. However, sustained break of 1.4014 will argue that fall from 1.4791 has completed, and bring stronger rally to 61.8% retracement at 1.4312.

Asian stocks edged lower today as investors digested fresh U.S. tariff announcements from President Donald Trump and tempered expectations for aggressive Fed easing. Risk appetite softened, with trade uncertainty once again colliding with questions over monetary policy.

At the Fed, officials remain hesitant to commit to a firm easing path. Outside of Governor Stephen Miran’s calls for deeper and faster moves, most policymakers are emphasizing data dependence. The message is clear: cuts are still coming, but the pace and scale will be dictated by incoming numbers.

As it stands, markets see back-to-back easing in October as highly likely, with futures pricing an 87.7% probability of a cut. However, the chance of another move in December has slipped to 62%, reflecting unease over whether the Fed will need to accelerate the pace of its cuts.

That puts sharper focus on today’s PCE inflation release, the Fed’s preferred gauge. A stronger-than-expected print could dampen easing expectations further, while a soft outcome could revive bets for a December cut. Even so, the decisive test will come with next week’s non-farm payrolls, which will give the clearest signal on labor market health.

On the trade front, Trump announced sweeping new duties, including 100% tariffs on imported branded drugs, 25% on heavy-duty trucks, and 50% on kitchen cabinets. Bathroom vanities and upholstered furniture will also face tariffs of 50% and 30% respectively, with all measures set to take effect on October 1. Uncertainty remains high as Trump did not clarify whether the duties would be layered on top of existing tariffs or if key trading partners with agreements—such as the EU or Japan—would be exempt.

In currencies, Dollar has emerged as the week’s strongest performer, followed by Swiss Franc and Euro. At the bottom, Kiwi leads losses, trailed by Yen and Loonie, while Sterling and Aussie hold middle ground.

In Asia, Nikkei fell -0.64%. Hong Kong HSI is down -0.56%. China Shanghai SSE is down -0.28%. Singapore Strait Times is up 0.01%. Japan 10-year JGB yield rose 0.009 to 1.658. Overnight, DOW fell -0.38%. S&P 500 fell -0.50%. NASDAQ fell -0.50%. 10-year yield rose 0.025 to 4.172.

Fed’s Goolsbee cautions against front-loading cuts, Daly favors gradual approach

Speaking overnight, Chicago Fed President Austan Goolsbee noted he is “somewhat uneasy” with front-loading too many rate cuts based solely on slowing payroll growth. With inflation above 2% for nearly five years and moving “the wrong way,” he warned that simply assuming price pressures are transitory is a risky strategy.

Separately, San Francisco Fed President Mary Daly reiterated that further easing will likely be needed but emphasized a measured pace. She argued that cutting “a little bit more over time” while reassessing incoming data is the safer way to balance the Fed’s dual mandate.

Daly cautioned that moving too quickly could risk undermining either employment or price stability. A gradual approach, she said, allows the central bank to “actually get to a good achievement” by avoiding overcorrections.

Tokyo CPI core stays at 2.5% in September, core-core slows

Tokyo inflation came in softer than expected in September, with core CPI (ex-fresh food) unchanged at 2.5% yoy versus forecasts of 2.8% yoy. The moderation was largely attributed to measures by the metropolitan government, including cuts to childcare fees and water charges, easing some of the burden from rising living costs.

Core-core inflation, stripping out fresh food and energy, slowed sharply from 3.0% yoy to 2.5% yoy, while headline CPI was also steady at 2.5% yoy. Food inflation excluding fresh items cooled to 6.9% yoy from 7.4% yoy, highlighting a broadening slowdown in price pressures.

The weaker data may give the BoJ some breathing room, though markets still price another 25bps hike in the months ahead. Opinion remains divided on whether policymakers act as soon as October or hold off until January.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3900; (P) 1.3925; (R1) 1.3965; More...

USD/CAD's rally continues and the break of 1.3923 confirms resumption of whole rebound from 1.3538. Intraday bias stays on the upside for 1.4014 cluster resistance. Strong resistance is expected from there to limit upside to complete the corrective rise. On the downside, below 1.3884 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 cluster resistance (38.2% retracement of 1.4791 to 1.3538 at 1.4017) holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 (2025 high) at 1.3069. However, sustained break of 1.4014 will argue that fall from 1.4791 has completed, and bring stronger rally to 61.8% retracement at 1.4312.

The short-term Elliott Wave analysis for Ethereum (ETHUSD) indicates that the cycle from the August 24, 2025 peak continues to unfold as a zigzag Elliott Wave structure. From that peak, wave A concluded at $4,214.14, followed by a wave B rally that reached $4,770.92. Ethereum then turned lower in wave C, which is developing as an impulse Elliott Wave structure. Within wave C, wave ((i)) ended at $4,429.03, and the subsequent rally in wave ((ii)) peaked at $4,649.37.

The cryptocurrency has since extended lower in wave ((iii)), hitting $4,074.40, with wave ((iv)) concluding at $4,208.33. Currently, wave ((v)) is underway and appears mature, suggesting it could end soon. As long as the pivot at $4,770.92 remains intact, further downside is possible. The target for wave C can be calculated using the 100% to 161.8% Fibonacci extension of wave A, measured from the August 24, 2025 peak. This projects a range of $3,553.64 to $4,013.04. Once Ethereum reaches this zone, it could reverse higher or at least rally in three waves. Traders should monitor this area for potential buying opportunities, as it may signal the end of the current corrective phase and the start of a new upward move.

Ethereum (ETHUSD) – 60 Minute Elliott Wave Technical Chart:

ETHUSD – Elliott Wave Technical Video:

https://www.youtube.com/watch?v=CzKld6QJ4Ic

Key Highlights

• USD/JPY cleared hurdles near 148.50 and surged over 150 pips.
• The pair could now face resistance near 150.00 on the 4-hour chart.
• EUR/USD trimmed gains and dipped below 1.1720.
• Bitcoin and Ethereum extended losses and remain at risk of additional downside.

USD/JPY Technical Analysis

The US Dollar remained strong above 146.50 against the Japanese Yen. USD/JPY jumped above 147.50 and 148.00 to set the pace for a fresh surge.

Looking at the 4-hour chart, the pair cleared a major declining channel with resistance at 147.50 to start the current surge. It settled above the 148.50 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour).

The pair even cleared the 149.13 high, opening the doors for more gains. On the upside, the pair could face resistance near the 149.80 level.

The first major hurdle for the bulls could be 150.00 since it coincides with the 1.236 Fib extension level of the downward move from the 149.13 swing high to the 145.48 low. A close above 150.00 could set the pace for another rally.

In the stated case, the pair could rise toward 151.40, above which the bulls could aim for a move toward 152.00. Any more upsides could send the pair toward 152.50.

On the downside, there is a key support at 148.80. The next area of interest might be 148.50. The main support could be 148.20. Any more losses might increase selling pressure and send USD/JPY toward 147.75 and the 100 simple moving average (red, 4-hour).

Looking at EUR/USD, the pair failed to stay above 1.1780 and extended losses below the key support at 1.1720.

Upcoming Key Economic Events:

• US Personal Income for August 2025 (MoM) - Forecast +0.3%, versus +0.4% previous.
• US Core Personal Consumption Expenditure for August 2025 (MoM) - Forecast +0.2%, versus +0.3% previous.

Tokyo inflation came in softer than expected in September, with core CPI (ex-fresh food) unchanged at 2.5% yoy versus forecasts of 2.8% yoy. The moderation was largely attributed to measures by the metropolitan government, including cuts to childcare fees and water charges, easing some of the burden from rising living costs.

Core-core inflation, stripping out fresh food and energy, slowed sharply from 3.0% yoy to 2.5% yoy, while headline CPI was also steady at 2.5% yoy. Food inflation excluding fresh items cooled to 6.9% yoy from 7.4% yoy, highlighting a broadening slowdown in price pressures.

The weaker data may give the BoJ some breathing room, though markets still price another 25bps hike in the months ahead. Opinion remains divided on whether policymakers act as soon as October or hold off until January.

Speaking overnight, Chicago Fed President Austan Goolsbee noted he is “somewhat uneasy” with front-loading too many rate cuts based solely on slowing payroll growth. With inflation above 2% for nearly five years and moving “the wrong way,” he warned that simply assuming price pressures are transitory is a risky strategy.

Separately, San Francisco Fed President Mary Daly reiterated that further easing will likely be needed but emphasized a measured pace. She argued that cutting “a little bit more over time” while reassessing incoming data is the safer way to balance the Fed’s dual mandate.

Daly cautioned that moving too quickly could risk undermining either employment or price stability. A gradual approach, she said, allows the central bank to “actually get to a good achievement” by avoiding overcorrections.

Key insights from the week that was.

It was a particularly quiet week for Australian data, with August’s Monthly CPI Indicator the only release of note. At 2.9%yr, August’s result landed between the market’s expectation and our own. Within the detail, the key surprise was a 0.4% increase in dwelling costs, the ABS noting that project home builders increased prices and reduced discounts in some cities. Insurance costs also rose more than expected. Offsetting this inflation was a 6.3% decline in electricity prices as households in NSW and ACT received their first payment from the extended Commonwealth Energy Bill Relief Fund.

While some in the market hold this result to be a material threat to inflation’s anticipated return to the mid-point of the target range, our profile for headline inflation is unchanged and the trimmed mean forecast for Q3 only a touch higher. Moreover, we still anticipate a sustained return to target for both headline and trimmed mean inflation long before the end of the forecast period. As detailed by Chief Economist Luci Ellis, while a November cut is now less certain, it remains our base case. So are follow-up cuts in February and May 2026, taking the cash rate to a 2.85% cycle low.

Over in New Zealand, the new RBNZ Governor was announced. Dr Anna Breman, currently the First Deputy Governor of Sweden’s central bank, will begin her 5-year tenure as RBNZ Governor on 1 December 2025. New Zealand’s Minister of Finance Nicola Willis noted that she does not intend to change the RBNZ’s inflation target, and Dr Breman stated at a press conference that the RBNZ will remain “laser focused on low, stable inflation”. Acting RBNZ Governor Christian Hawkesby will remain Governor until December, overseeing the 8 October OCR review and 26 November Monetary policy statement which our New Zealand Economics team expects will deliver respective cuts of 50bps and 25bps. Mr Hawkesby will depart the RBNZ after Dr Breman commences; his role on the MPC will need to be filled early next year. For an outline of some of the policy issues Governor Breman may face in 2026, see Westpac New Zealand Chief Economist Kelly Eckhold’s bulletin.

With the data flow restricted to second and third tier releases, Fedspeak was the market’s focus in the US this week.

Chair Powell emphasised risk management during his prepared remarks and Q&A, justifying the 25bp cut delivered with the loss of momentum in job creation and growing downside risks to the currently balanced labour market. Chair Powell sees the resulting policy stance as modestly restrictive and therefore still helpful in managing lingering upside inflation risks, which are primarily seen as a consequence of tariff implementation – a one-off shock. Bostic, Goolsbee, Schmid, Musalem and Hammack all, to varying degrees, expressed lingering concern over inflation this week while also recognising labour market softening. Broadly they are likely to support a slow return towards neutral as the data shows inflation and associated risks abating.

Vice Chair for Supervision Bowman's remarks were, in contrast, decidedly dovish. Bowman made clear that she believes inflation's persistence near 3.0%yr was broadly due to tariffs, noting that PCE inflation excluding estimated tariff effects was 2.5%yr at August, "within range of our target". Much of the rest of her remarks were focused on the deceleration underway in job creation and the risks of a continued deterioration in the trend to outright job shedding. Concern that the FOMC may be falling behind in their policy actions leads her to believe policy should continue to be eased towards a neutral stance in coming months.

Of the data received, August durable goods orders was most topical. The headline measure exceeded expectations, rising 2.9%mth. Core goods orders (non-defence, ex aircraft) were in contrast up just 0.6%, emphasising the importance of transport and defence equipment to US manufacturing. Investment in the broader economy, outside of AI-related spending, remains soft and fickle. Highlighting this, the Richmond Fed manufacturing index declined from -7 to -17 in September as expectations for capital expenditures remained weak at -11. Looking to the medium term, the weakness in investment is not just a risk for economic growth but also for inflation. Weak investment in 2025 and 2026 will restrict capacity thereafter, leading to excess demand and price pressures. This is why we remain concerned that US inflation will be much more difficult to return sustainably to the 2.0%yr target than the market and FOMC currently expect.

The US Dollar has been rallying steadily since its pre-FOMC lows, with Powell’s not-so-dovish speech last week marking the start of a V-shape reversal from the sharp pre-meeting downfall.

Despite another appearance from the Fed Chair at a Rhode Island conference on Tuesday—where his strong emphasis on employment could have been read as a dovish catalyst—markets didn’t budge.

Instead, the DXY finished higher that day, signaling that markets already priced in Powell’s words and participants are now looking for something else.

The decisive move came from this morning's Jobless Claims beat, combined with even higher Q2 GDP, which markets saw as another reason to extend the Dollar’s buyback.

The greenback is up roughly 0.40% on the session, reclaiming a key pivotal level that had been holding back momentum.

Some technical aspects warrant signs of change in the previous trend. The question will now be whether the change will be more temporary or the start of a new trend.

The index’s double bottom, formed right ahead of last Wednesday’s FOMC meeting, is now acting as a solid base.

Layered onto this market backdrop is a strangely tense geopolitical environment.

Nothing major has erupted yet, but Eastern European nations continue to report threats from Russia, and US Secretary of War (precedingly Secretary of Defense) Pete Hegseth has convoked all generals for a meeting next week—no reason announced.

Whether this is an operational matter or a potential political headwind, it adds a layer of uncertainty that could further bolster dollar demand.

All in all, the US dollar rally is changing current market flows, and particularly when looking at the charts of the first three quarters, any higher continuation may continue rewire markets quite remarkably.

With some geopolitics quietly simmering and a few technical signs, one can expect lots of change going forward.

Before anything, let's have a look at the US Yields to see what's the story with the Federal Reserve expected cuts since the beginning of August.

US 2Y Yield

US 2-Year Yield, September 25, 2025 – Source: TradingView

We spot a rejection zone that has formed since FOMC right around the 3.50% mark, with the 2-Year Yield now up above 10 bps (basis points) since the Wednesday FOMC.

Failing to breach the Liberation day lows (3.45%), a more positive picture is drawing from the latest round of US data which reduces angst about the labor market, hence less need for rate cuts.

The dollar becomes more attractive as yields increase, but the story is more complex.

Markets might be getting afraid that still extreme deficits will prevent an economy slowdown.

It is for that reason that FED speakers keep mentioning their decision making as data dependent, which in turns provides more confidence in the Federal Reserve's independence, hence an increase dollar demand.

The daily FX picture is pretty bloody for Dollar bears

Daily FX picture, September 25, 2025 – Source: TradingView

Dollar Index Multi-timeframe outlook

DXY Daily Chart

Dollar Index (DXY) Daily chart, September 25, 2025 – Source: TradingView

A week after the FOMC candle, the double bottom got confirmed by the following price action: The DXY is up 2.42% since marking new 2025 lows at 96.20.

Today's huge +0.70% performance easily broke through previous highs and now goes to test August 1 highs (before the huge miss in the July NFP).

The upcoming price action will have a huge influence on other assets, particularly in the case of a dollar breakout.

A Head and Shoulders pattern has formed and time will tell if it will complete – The fundamentals do seem to corroborate with that theme for now..

Let's have a closer look to see more details.

DXY 4H Chart

Dollar Index (DXY) 4H chart, September 25, 2025 – Source: TradingView

Prices have broken and retested the August downward trend before flying higher in today's session.

Ongoing mean-reversion gives the USD a break in its ascend.

Participant will now look to see if prices get rejected much further, with a consolidation near today's highs giving increased odds of upside breakout.

Such a scenario could point to 99.25, target of the Head & Shoulders or even higher, depending on how strong the price action gets.

Positioning in the Dollar is always very complex and leads to tricky action.

Safe Trades!