This morning’s European market session saw gold prices easing from record highs, anticipating the Federal Open Market Committee decision. The dollar remained steady after previous heavy losses, with EUR/USD displaying minor recovery. The Chinese government has instructed its tech firms to cease purchasing Nvidia’s AI chips. The European Central Bank’s de Guindos stated the current interest rate is suitable, while ECB members stressed the need for readiness in monetary policy.
Economic Data Overview
Economic data released included UK August CPI meeting expectations at +3.8% year-on-year, suggesting a policy pause by the Bank of England. Eurozone’s CPI, however, slightly underperformed the preliminary estimate at +2.0%. In the US, mortgage applications surged 29.7% for the week ending 12 September, up from +9.2% prior.
Markets remained largely unchanged, with the Japanese yen leading, and the euro lagging. European equities showed minimal movement, and US S&P 500 futures dropped by 0.1%. Commodities saw downturns, with gold declining 0.7% to $3,665.19 and WTI crude oil down 0.7% to $64.09. Bitcoin also saw a decrease, settling at $116,347. Investors are exhibiting caution, awaiting the FOMC’s decision before making major moves.
All eyes are on the Federal Reserve today, creating a tense quiet across markets. This kind of environment is perfect for volatility plays, as a surprise from the Fed could trigger a major price swing. We’re seeing the CBOE Volatility Index (VIX) trading near 18, reflecting this anticipation for a breakout move.
The US 10-year yield is hovering just above 4%, a critical level that hinges entirely on the Fed’s tone later. That stunning 29.7% jump in mortgage applications, the largest weekly increase we have seen since the housing market began to recover back in 2024, gives the Fed cover to remain hawkish. We should consider positions that benefit from higher yields, like buying puts on Treasury futures.
Potential Market Strategies
A hawkish Fed would likely send the dollar higher, pushing EUR/USD back below the 1.1800 level. The European Central Bank’s own officials sound divided, suggesting they will lag behind any aggressive moves from the US. This sets up a potentially profitable trade by shorting the euro against the dollar through options or futures.
In the equity space, we should be cautious as US futures are already showing weakness. The news about China restricting Nvidia chip purchases adds a specific headwind for the entire tech sector. Protective put options on indices like the Nasdaq 100 could be a prudent strategy heading into the Fed’s announcement.
Gold is pulling back from its record highs near $3,700, showing that some traders are taking profits ahead of the Fed. If the Fed signals that interest rates will stay higher for longer, as we saw them do during the 2022-2023 tightening cycle, non-yielding gold could face significant pressure. We see this as an opportunity to bet on a further decline from these elevated prices.
Meanwhile, the European data confirms a different path is being taken on this side of the Atlantic. The final Eurozone inflation print hit the 2.0% target, a level not consistently seen since before the major inflationary wave of the early 2020s. This, along with steady UK inflation, reinforces the idea that European central banks will remain on hold, creating a policy divergence with the US.
