Insights 
VT 
Global markets are entering a key phase as central banks continue to face challenging policy decisions and a fine balancing act with the dual risks of inflation and stagflation. This uncertainty, alongside ongoing geopolitical instabilities, is creating volatility across all asset classes.
In the US, the Fed is dealing with cooling inflation, while growth indicators are also showing signs of recession risks, with the Fed increasingly coming under pressure to cut rates, especially from the Trump administration.
If a larger easing of rates occurs, we may see a weaker USD, leading to volatility and more upside on pairs such as GBPUSD, EURUSD and AUDUSD. However, Jerome Powell struck a more cautious tone after the recent Fed meeting, casting doubts on the potential for multiple further rate cuts this year.
On the commodities side, gold and silver continue to benefit from their status as safe havens against stagflation fears.
Equity markets, particularly the S&P 500 and Nasdaq, have continued their strong performance again, making new record highs, something we seem to be seeing every month. This is fuelled by hopes around eventual Fed easing.
Outside the US, the ECB faces a very different challenge. Inflation in the eurozone remains sticky, especially in services, while growth is stagnating. The ECB’s reluctance to ease aggressively contrasts with the Fed’s dovish tilt, setting up divergence that supports the euro in the short term.
In Japan, the BoJ is continuing to move away from years of ultra-loose policy. That has triggered sharp moves in JPY pairs, creating higher volatility, with JPY pairs now particularly sensitive to small shifts in policy.
Commodities are also being affected by the central bank divergence. Oil has been caught between supply-side constraints and fears of weaker global demand if we see further signs of recession. Gold and silver remain key hedges, supported not only by USD weakness but also by persistent geopolitical uncertainty.
In the Crypto markets, if we see the Fed rate cuts accelerate, we could see renewed momentum in Bitcoin and Ethereum, alongside altcoins that thrive in these conditions.
Divergence between central banks is creating a high volatility environment and opportunities in forex, commodities, and indices. Traders must keep an eye on potential shifts in policy and listen carefully to what the central banks are saying, and not just look at headline numbers.
Turning to the foreign exchange market, September brought notable movements driven by shifting central bank policies.
September saw some volatility come back to the Forex markets, and although we saw the 25 basis points cut from the Fed as expected, the tone struck by Jerome Powell led to some USD strength creeping back in due to what he described as “challenging policy decisions”.
These challenges include trying to stave off the threat of stagflation: battling recession fears over slow growth, while balancing this against easing too quickly and fuelling inflation that remains sticky due to top tariffs.
If we see further rate cuts and easing from the Fed this year, we could see weakness in the USD return, which would lift major currencies such as EUR, GBP, and AUD. Emerging market currencies could also be boosted.
Meanwhile, the BoJ is continuing to gradually move to normalisation, but doing so in a gradual manner so as not to shock the markets. JPY’s strength has remained relatively muted as any weakness in the USD could also impact its decisions on future rate hikes.
Figure 1: 4-hour USDJPY chart showing USDJPY to be rangebound as we wait for further clarity on Central Bank policy
Gold
Moving on to precious metals, gold and silver extended their strong performance amid uncertainty.
Gold and silver continue to benefit from USD weakness and ongoing macro and geopolitical issues, with both breaking out again in September to new highs. Silver is now trading at 14-year highs, pushing towards $45, with gold also making new record highs again in September.
Any future rate cuts and weakness in the USD will continue to fuel gold demand as it makes it more attractive and cheaper for investors. Especially when the cuts are fuelled due to concerns over growth and the ongoing stagflation fears, creating uncertainty and driving investors to safe-haven assets.
Central bank and institutional demand also remain strong, with steady inflows into gold ETFs showing that the appetite for gold remains even at these higher prices and an extended bull run.
Figure 2: Daily gold chart showing its breakout to new record highs in September
Oil
In the energy sector, oil prices remained relatively stable as supply and demand factors played out.
Oil remained relatively stable in September, trading within the range below the key resistance around $65.50 and finding support around $61.50.
Oil will continue to be driven by global demand and supply dynamics. Demand could be boosted if we see further rate cuts, since a weaker USD makes oil cheaper to buy as it is priced in USD.
Supply will also continue to play a part. OPEC+ announced in September it will continue to increase output, but we are also heading into a period when refineries often undergo maintenance, which can put constraints on supply.
Figure 3: 4-hour oil chart showing its stable rangebound price action through September
Shifting focus to equity indices, the US markets again delivered record highs despite mixed signals.
September brought yet another round of record highs in September in US indices, as investors continue to hope for more rate cuts from the Fed. One thing to note, however, is that whilst the NASDAQ hit record highs, some of the mega-cap tech stocks pulled back slightly.
Indices
Looking ahead to October, indices will remain volatile. If the Fed follows through with rate cuts and inflation signals ease, then growth/tech stocks could continue higher. But any hawkish commentary from the Fed or signs of economic deterioration could hit them hard.
A weaker USD often helps US equities, and particularly growth/tech stocks, as they generate a lot of revenue overseas, so the weaker USD inflates their revenue when converting back to the US.
Figure 4: 4-hour chart of the NASDAQ 100 showing its breakout and march onto new record highs in September
Finally, in digital assets, cryptocurrencies showed caution but remain sensitive to shifts in USD and rates.
Bitcoin and Ethereum remained cautious in September as some traders booked profits due to strong gains this year.
Much like Gold and oil are priced in USD, the bullish momentum on Crypto could take hold once again if we see USD weakness as it becomes more attractive for non-US buyers.
Additionally, USD weakness often correlates with looser monetary policy and lower real yields which are both favourable conditions for rotation into higher-risk assets like crypto.
Figure 5: 4-hour Ethereum chart showing some more settled rangebound price action through September
This article was written by Ross Maxwell, Senior Market Analyst at VT Markets.
