Oil prices fell on Wednesday as investors closely monitored US President Donald Trump’s latest ultimatum to Russia over the war in Ukraine, as well as his threats to impose tariffs on countries that continue trading Russian oil.

Brent crude futures for the most actively traded contract dropped by 58 cents, or 0.81%, to $71.10 a barrel by 10:14 GMT. US West Texas Intermediate (WTI) crude also declined by 58 cents, or 0.84%, to $68.63 per barrel.

The September Brent contract, which expires later on Wednesday, fell 59 cents, or 0.81%, to $71.92 a barrel.

This drop follows a strong session on Tuesday, when oil futures closed at their highest levels since June 20.

On Tuesday, Trump announced that he would begin taking action against Russia — including imposing secondary tariffs of 100% on its trading partners — if there is no progress in ending the war within the next 10 to 12 days. This new ultimatum significantly shortens the previous deadline of 50 days.

John Evans, analyst at PVM Associates, noted in a briefing that China and India are the primary beneficiaries of Russian crude, but India is more exposed to potential fallout.

He added, “Alternative sources of crude will need to be found, and while Saudi Arabia and its OPEC partners are willing and able to fill the gap, the time required for this adjustment will offer additional short-term support to prices.”

Analysts at JPMorgan wrote that China is unlikely to comply with US sanctions, while India has signaled its readiness to do so. This divergence could impact up to 2.3 million barrels per day of Russian oil exports.

Vandana Hari, founder of oil analytics firm Vanda Insights, said: “The supply risk premium — which has added about $4 to $5 per barrel in recent days — is expected to remain unless President Putin takes conciliatory steps.”

Meanwhile, US Treasury Secretary Scott Besant warned during a press conference in Stockholm that China — the largest buyer of Russian oil — could face substantial tariffs if it continues purchasing oil from Moscow.

However, Barclays analyst Amarpreet Singh expressed skepticism that Russian barrels will exit the market anytime soon.

He explained that low energy prices remain a top priority for the Trump administration, and Russia’s ability to circumvent Western sanctions since the invasion of Ukraine has made its exports more resilient against price cap mechanisms.

The US dollar fluctuated near its one-month high on Wednesday ahead of the Federal Reserve’s monetary policy decision, while the euro appeared on track to end a six-month streak of monthly gains as investors weighed the cost of the new US-EU trade agreement.

The Japanese yen rose against the dollar following a powerful earthquake off Russia’s Kamchatka Peninsula, which triggered a tsunami and evacuation warnings across the region and along most of Japan’s eastern coastline.

Currency markets remained relatively stable as investors refrained from placing new bets ahead of key economic reports and upcoming central bank meetings in Canada, Japan, and the US.

US and Chinese officials agreed to seek an extension of their 90-day tariff truce after what both sides described as “constructive” two-day talks in Stockholm. No major breakthroughs were announced, and US officials stated that any decision to extend the truce — which ends August 12 — still rests with President Donald Trump.

The US-China discussions come on the heels of Sunday’s US-EU framework agreement, which has stirred a mix of relief and concern in Europe due to its perceived imbalance favoring the US. Investors are closely watching these trade deals as countries race to secure agreements before Trump’s self-imposed August 1 deadline.

Charu Chanana, Chief Investment Strategist at Saxo in Singapore, remarked: “Markets increasingly see these trade deals as symbolic and tactical rather than structural solutions.” She added, “With vague terms and weak enforcement mechanisms, investors are assigning less market weight to such negotiations unless backed by concrete details.”

The euro edged up to $1.1555 after falling in the first two days of the week and hitting a one-month low of $1.15185 on Tuesday. Despite a 11.7% gain year-to-date, the euro is heading for its first monthly decline in 2025.

The euro’s strength earlier this year was largely due to waning interest in the dollar, as Trump’s unpredictable trade policies pushed investors to seek alternatives.

The British pound stood at $1.3355, while the Australian dollar held steady at $0.6514 after weaker-than-expected inflation data increased the likelihood of a rate cut next month.

The US Dollar Index — which measures the dollar against six major peers — stood at 98.823, hovering near its one-month high and set to post its first monthly gain of the year.

Investor focus is now turning to central bank meetings, with the Fed widely expected to keep interest rates unchanged later on Wednesday. Fed Chair Jerome Powell’s comments are anticipated to be pivotal in determining the future direction of US monetary policy.

This meeting comes amid intensifying calls from President Trump to cut rates, along with persistent criticism from his administration aimed at Powell.

There is speculation that both Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman — Trump appointees — might dissent if the Fed holds rates steady for a fifth time since December. Powell is also a Trump appointee.

Kristina Clifton, Senior Economist at Commonwealth Bank in Sydney, said: “While dissent isn’t unusual, any dissent in this week’s meeting could draw more attention given Trump’s clear stance that the FOMC should lower rates.”

She added: “Dissent in this meeting may be seen as politically motivated, which could damage the perception of the committee’s independence.”

The Bank of Japan is also expected to maintain its current policy. Markets will closely watch Governor Kazuo Ueda’s statements, as the recent US-Japan trade agreement could open the door for a potential rate hike later this year.

The yen rose 0.4% to 147.85 against the dollar and was last seen at 148.06, following news of the earthquake and tsunami in the Pacific Ocean. Investors are monitoring any possible damage to Japan’s critical infrastructure.

Christopher Wong, Currency Strategist at OCBC, noted that the yen’s strength was a reaction to the earthquake news and may have been amplified by low market liquidity.

He added: “The nightmare of the 2011 Tōhoku earthquake still lingers,” referring to the devastating quake and tsunami that struck northeastern Japan in March 2011.

Gold prices rose in European markets on Wednesday, extending their recovery for the second day in a row from a three-week low, supported by continued buying at lower levels and a pause in the US dollar's upward momentum in the foreign exchange market.

The Federal Reserve is set to conclude later today its fifth scheduled meeting of 2025 to discuss appropriate monetary policy for the world's largest economy. Markets widely expect interest rates to remain unchanged for the fifth consecutive meeting.

To reassess the likelihood of a rate cut in September, markets are awaiting a series of key labor market data releases from the United States.

Price Overview

• Gold Price Today: Gold rose by 0.25% to $3,333.73, up from the session’s opening at $3,326.51, after hitting a low of $3,321.98.

• On Tuesday, gold settled with a 0.35% gain — its first daily rise in the past five sessions — recovering from a three-week low at $3,301.94 per ounce.

US Dollar

The US Dollar Index declined by 0.2% on Wednesday, pulling back from a five-week high at 99.14 points, reflecting a pause in the greenback’s rally against a basket of global currencies.

In addition to profit-taking, dollar levels are retreating as investors hold off on opening new positions ahead of the Fed’s policy meeting, which could offer stronger signals about a possible rate cut in September.

Federal Reserve

The Federal Reserve will conclude its fifth regular meeting of 2025 later today to assess appropriate monetary policy amid evolving economic conditions. Interest rates are expected to remain unchanged at 4.50% for the fifth straight meeting.

The Fed's interest rate decision and policy statement will be released at 19:00 GMT, followed by Chair Jerome Powell’s press conference at 19:30 GMT.

Powell’s remarks are expected to offer more clarity on the likelihood of rate cuts this year, especially in light of recent economic developments and fading concerns over Trump’s tariff policies.

US Interest Rate Expectations

• According to CME Group’s FedWatch tool, the probability of a 25-basis-point rate cut at today’s meeting is priced at 2%, with a 98% chance of no change.

• The probability of a 25-basis-point cut in September currently stands at 64%, versus a 36% chance of rates remaining unchanged.

• To reprice these odds, markets await several important labor market releases this week, including today’s private sector employment report, Thursday’s weekly jobless claims, and Friday’s July non-farm payrolls report.

Gold Outlook

Kelvin Wong, Market Analyst for Asia-Pacific at OANDA, noted: “There is a possibility the Fed could adopt a hawkish stance, which is evident from US Treasury yields,” adding that “the strength of the US dollar has also faded at this stage.”

Wong added: “If gold prices surpass $3,350 by the end of this week, considering the upcoming European inflation data and the US jobs report, this could restore upward momentum, at least in the short term.”

SPDR Gold Trust

Holdings of the SPDR Gold Trust — the world’s largest gold-backed exchange-traded fund — remained unchanged yesterday at 956.23 metric tons.

The euro rose in European markets on Wednesday against a basket of global currencies, marking its first gain in five sessions versus the US dollar. The rebound came as investors bought the euro from lower levels, while the dollar’s upward momentum paused in the forex market.

Expectations of a European rate cut in September declined following last week’s hawkish European Central Bank meeting. Investors now await key upcoming economic data from the eurozone — especially July inflation figures — to reprice those expectations.

Price Overview

• EUR/USD today: The euro climbed 0.25% to $1.1573, from an opening price of $1.1546. The session low stood at $1.1545.

• On Tuesday, the euro ended down 0.35% versus the dollar — its fourth straight daily loss — after hitting a five-week low of $1.1516 following a German-French backlash against the recent EU-US trade deal.

US Dollar

The US Dollar Index fell 0.2% on Wednesday, retreating from a five-week high of 99.14 points, reflecting a pause in the greenback’s advance against major currencies.

Beyond profit-taking, dollar levels declined as investors refrained from building new long positions ahead of the US Federal Reserve’s policy statement. Markets are looking for strong clues regarding the likelihood of a September rate cut.

The Fed concludes its crucial policy meeting later today. Markets widely expect rates to remain unchanged for the fifth consecutive meeting as officials assess appropriate policy for the world’s largest economy.

ECB Policy Outlook

• Last week, the ECB held its key interest rates steady at 2.15% — the lowest since October 2022 — after having cut rates at the previous meeting for the seventh straight time.

• The ECB opted to pause its easing cycle amid uncertainty surrounding future US trade relations.

• ECB President Christine Lagarde said after the meeting, “We are in wait-and-see mode,” and added that the eurozone economy has shown resilience despite global uncertainty.

• According to Reuters sources, a clear majority at the ECB meeting preferred to keep rates unchanged again in September.

• Money markets now price in less than a 30% chance of a 25 basis-point ECB rate cut in September, down from 50% previously.

• To reassess these probabilities, investors are watching closely for upcoming eurozone data and ECB official commentary.

Euro Outlook

• At Economies.com Today, we expect that if the Federal Reserve’s comments turn out to be less hawkish than expected, the probability of a US rate cut in September will increase — likely fueling further euro recovery against the dollar.