The U.S. dollar held steady against other major currencies on Tuesday, supported by safe-haven flows. The U.S. economic calendar includes job openings and factory orders data for July. Later in the session, markets will watch the Federal Reserve’s Beige Book report and comments from policymakers.

By 12:09 GMT, the dollar index was unchanged at 98.3, after reaching a high of 98.6 and a low of 98.1.

U.S. Dollar: Bond Market Turmoil Threatens Recent Gains

The dollar’s latest rally looks more like a nervous spasm than a sustainable shift. The move was less about U.S. fundamentals and more about turmoil in global bond markets. Long-term bond prices from London to Tokyo sold off sharply, sending yields to multi-decade highs and pulling the dollar upward in the process.

Beneath this volatility, however, fundamentals remain tilted against the greenback: the U.S. labor market is showing signs of slowing, Fed Chair Jerome Powell has signaled a bias toward prioritizing employment over inflation, and the central bank is preparing to ease.

Friday’s U.S. jobs report is the key weight on the market’s balance. If it confirms stagnation, the reaction is predictable: traders will reinforce bets on larger near-term cuts, the yield curve will steepen further, and global bond desks will reposition. The report, therefore, has less to do with payrolls themselves and more with the shape of the yield curve and the credibility of the Fed’s pivot.

The open question is where the dollar will settle. Will it continue to ride the wave of global bond selling, drawing temporary support from safe-haven flows? Or will it realign with two-year U.S. Treasury yields, the traditional compass for FX traders? If cuts are aggressively priced in, two-year yields will bear the burden, potentially undermining the dollar’s base. For now, as long as global bond volatility remains elevated, the dollar can draw oxygen from safe-haven demand.

In short, the jobs report is pivotal. Weak data would set the stage for a series of easing steps, steepening yield curves further and eroding the dollar’s link with two-year yields. Only if this shift sparks broader risk aversion can the dollar hold on to its recent gains. Until then, the currency seems stuck between short-end U.S. yields and global bond market turmoil.

The author adds: “I see trimming dollar shorts as tactical, not the start of a broad squeeze higher — perhaps toward 1.15 — though I wouldn’t hesitate to buy dips. Yesterday’s dollar rally, sparked by heavy selling in UK Gilts and French OATs, lacked broad conviction.”

He notes that debt concerns outside the U.S. may have prompted some investors to reduce exposure, but argues this fuel is insufficient for a sustained dollar rally. “I’m watching dips, but patience is key; levels below 1.1625 are rare, and I’d rather wait than chase until the market forces my hand.”

The labor story extends beyond nonfarm payrolls, as Trump’s appointment of a new Bureau of Labor Statistics head raises questions about the credibility of official data. That places greater weight on secondary indicators such as JOLTS, which shows job vacancies declining but still well above pre-COVID averages. If layoffs continue to fall, policy repricing may be slower; if they start to rise, Fed easing could accelerate. In either case, Powell has made clear that risks are tilted toward employment, not inflation.

For the euro, valuation models point to fair value closer to 1.18, suggesting EUR/USD remains undervalued even with political risks in France. French OAT weakness may limit enthusiasm, but unless the crisis spreads more broadly, the impact on the single currency looks largely absorbed. Meanwhile, a stronger-than-expected 2.3% core CPI reading yesterday lifted two-year euro swaps and briefly eased 2025 rate-cut expectations. Still, ECB officials continue to signal they are “well positioned,” implying any policy shift will remain data-driven.

In Japan, global bond market turmoil extended further. Thirty-year JGB yields hit a record 3.28%, while 20-year yields reached levels not seen since 1999. These moves reflect politics as much as numbers: Prime Minister Fumio Ishiba faces pressure after a poor July election result, and investors fear a populist successor could boost fiscal spending and pressure the BoJ to slow rate hikes. Tomorrow’s 30-year bond auction will be a key test, with insurers showing little appetite for long maturities, preferring shorter tenors.

Altogether, the U.S. dollar looks suspended in mid-air rather than grounded on firm fundamentals. Safe-haven demand tied to foreign debt concerns cannot mask the opposite pull from the Fed’s pivot toward easing. The euro remains undervalued, the yen hostage to politics, and global bonds the fault line running beneath all assets.

The author concludes: “Dollar momentum looks fragile, ready to crack once the jobs data hits. Until then, I’ll keep most cash on the sidelines — ready to sell into deeper dollar rallies if they reach my levels, and chase dollar weakness only when the market itself opens the door.”

Gold prices rose in European trading on Wednesday, extending gains for a seventh consecutive session and continuing to break records after surpassing the $3,500-per-ounce mark for the first time in history. The metal drew strong safe-haven demand amid mounting concerns over rising global debt levels.

With strong expectations that the Federal Reserve will cut interest rates by 25 basis points at its September meeting, global financial markets are now turning their focus to a series of key U.S. labor market data beginning today.

Price Overview

• Gold prices today: Spot gold rose by 0.4% to $3,546.90, an all-time high, from the session’s opening at $3,533.27, after touching a low of $3,526.47.

• On Tuesday, gold settled 1.65% higher, marking a sixth straight daily gain—the longest winning streak this year—supported by strong investment flows.

Global Debt

Traders sold off long-term government bonds this week across Europe, the UK, and the U.S., as fears resurfaced about surging debt levels in major economies. Markets grew increasingly concerned that governments could lose control over widening fiscal deficits, raising borrowing costs and adding pressure to global financial stability.

Trade Tensions

Uncertainty also increased after the Trump administration announced it would seek an urgent Supreme Court ruling on tariffs that a U.S. appeals court deemed illegal last week.

U.S. Interest Rates

• San Francisco Fed President Mary Daly reiterated support on Friday for lowering rates, citing risks to the labor market.

• According to CME FedWatch: Markets currently price a 92% chance of a 25-basis-point rate cut at the September meeting, with only an 8% probability of no change.

• Odds of a 25-basis-point cut in October are even higher, at 95%, versus 5% for no move.

• To recalibrate September expectations, investors await a slate of key U.S. labor data this week: July job openings due later today, ADP private payrolls and weekly jobless claims on Thursday, and Friday’s August nonfarm payrolls report.

Outlook for Gold

• Ilya Spivak, macro strategist, noted: “The Supreme Court case has injected significant uncertainty into markets. If the outcome goes against the president, it could fundamentally reshape the macroeconomic landscape.”

• He added: “Any attempt to undermine the independence of the Federal Reserve is also highly significant. The direction for gold remains clearly higher, with momentum largely one-sided.”

SPDR Holdings

Holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by 12.88 metric tons on Tuesday—the largest daily increase since March 21—bringing the total to 990.56 metric tons, the highest level since August 16, 2022.

The British pound fell in European trading on Wednesday against a basket of global currencies, extending losses for a second consecutive session against the U.S. dollar. The currency is now nearing a four-week low as heavy selling continued amid concerns over the UK’s financial stability.

The selloff in UK government bonds coincided with weakness across major sovereign debt markets, as investor focus remains fixed on rising debt levels.

Price Overview

• GBP/USD declined by more than 0.2% to $1.3359, down from the session’s opening at $1.3389, after recording a high of $1.3396.

• On Tuesday, the pound lost 1.1% against the dollar, marking its steepest daily drop since April 4, as heavy selling intensified on worries about the government’s ability to control the nation’s finances.

UK Bonds

The UK gilt market came under severe pressure, with 30-year borrowing costs rising to their highest level since 1998, leaving the pound under heavy downside pressure. The bond selloff mirrored moves in global markets, where concerns about elevated debt burdens dominated sentiment.

Starmer’s Changes

Prime Minister Keir Starmer appointed former Bank of England Deputy Governor Minouche Shafik as his chief economic adviser, in a move aimed at strengthening his economic credentials ahead of what is expected to be a highly challenging budget later this year.

The decision sparked political debate in the UK, with critics suggesting it undermines the standing of Chancellor Rachel Reeves within the government. Analysts noted that the reshuffle on Parliament’s first day back from summer recess sharpened focus on the economic challenges of high borrowing, slowing growth, and the highest inflation rate among G7 economies.

Market Commentary

• Ray Attrill, head of FX strategy at National Australia Bank, said: “The deterioration of public finances is essentially a European problem. France faces the same issues. They’ve been in the background for some time.”

• He added: “It likely resonates more in the UK because of the Liz Truss episode… Part of the concern is the upcoming autumn statement or budget.”

• Attrill continued: “At this stage, there’s a lack of market confidence that the government is ready to tackle the scale of the fiscal deficit and the rapid debt build-up effectively.”

• Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management, noted: “Everyone wants reassurance on the soundness of public finances, but with yields rising, the fiscal gap is only widening.”

• Nick Kennedy, FX strategist at Lloyds, added: “The UK has faced a precarious fiscal situation, and that will continue. Over the summer there was some risk in the interest rate market. Now investors want to extend that risk to the pound as well.”

The Japanese yen declined in Asian trading on Wednesday against a basket of major and minor currencies, extending losses for a fourth straight session against the U.S. dollar. The currency is now nearing a five-week low touched during Tuesday’s session, as political uncertainty in Japan—the world’s fourth-largest economy—continued to weigh.

Less hawkish comments from a Bank of Japan board member further reduced the likelihood of a rate hike before year-end, with investors awaiting stronger evidence on the path of policy normalization.

Price Overview

• USD/JPY rose about 0.4% to ¥148.92, up from the session’s opening at ¥148.36, after touching a low of ¥148.26.

• On Tuesday, the yen closed down 0.8% against the dollar, its third consecutive daily loss and the steepest decline since July 31, hitting a five-week low of ¥148.94 amid heavy selling pressure.

Political Uncertainty

Hiroshi Moriyama, secretary general of Japan’s ruling party and a close ally of Prime Minister Shigeru Ishiba, announced his resignation, deepening the political crisis and casting doubt over Ishiba’s future.

The development followed increased pressure on Ishiba after recent electoral losses, as calls for his resignation have intensified. So far, Ishiba has resisted stepping down. Analysts say Moriyama’s departure could weaken Ishiba’s internal support and increase the likelihood of further political pressure in the near term.

The situation has opened the door for Sanae Takaichi as a leading contender to succeed Ishiba. Known for her economic stance favoring persistently low interest rates, her potential leadership is seen as reinforcing expectations for a more accommodative monetary path.

Market Commentary

• Kit Juckes, chief FX strategist at Société Générale, said: “On the surface, political uncertainty, and the potential resignation of Prime Minister Shigeru Ishiba in the coming days or weeks, is weighing negatively on the yen.”

• Lee Hardman, senior currency analyst at MUFG, added: “The deepening political uncertainty is likely to remain a drag, while the lack of a strong hawkish signal from Deputy Governor Ryozo Himino on Tuesday will encourage speculators to rebuild short yen positions.”

Japanese Interest Rates

• Deputy Governor Ryozo Himino noted that the BoJ “should continue raising rates,” but emphasized that global economic uncertainty remains high, reducing the urgency to tighten borrowing costs.

• Board member Nakagawa warned of risks from trade policy and said he is awaiting the upcoming Tankan survey for clearer guidance on the normalization path.

• Markets currently price less than a 30% chance of a quarter-point hike at the September meeting.

Investors are closely monitoring upcoming data on inflation, unemployment, and wage growth in Japan, alongside further comments from BoJ officials, to reassess rate expectations.