FOMC Statement, FOMC Press Conference, Walt Disney Earnings

The euro extended its winning streak on Tuesday, with the EUR/USD pairending the session 0.25% higher. The upward momentum was fueled by continued uncertainty surrounding U.S. trade policy after President Trump reignited the prospect of tariffs on pharmaceutical imports.

Meanwhile, the U.S. Dollar Index fell for the third consecutive session, dipping into the low-99.00s. The pullback was driven by a more positive risk sentiment across markets and investor caution ahead of Wednesday’s Federal Reserve policy announcement.

Despite renewed concerns over U.S.-China trade relations, risk appetite among investors showed signs of resilience. However, many market participants viewed recent diplomatic engagements as largely symbolic, lacking concrete progress, which tempered the broader reaction.

The Federal Reserve and European Central Bank (ECB) remain on increasingly divergent policy tracks. The Fed is widely expected to maintain its target rate at 4.25%–4.50% later today. Although the Fed is widely expected to keep rates unchanged, investors will be paying close attention to commentary from policymakers—particularly Chair Jerome Powell—for any hints that a pivot toward rate cuts could come earlier than previously projected. Chair Jerome Powell recently emphasized that inflation remains uncomfortably high and cautioned about potential headwinds—including those stemming from new trade tariffs—fueling concerns over possible stagflation.

Gold prices surged on Tuesday, climbing to a two-week high as Chinese markets reopened after a long holiday and investor anxiety intensified over U.S. trade policy. Heightened geopolitical tensions also contributed to the rally, particularly following reports of a renewed conflict between India and Pakistan.

Bloomberg reported that India had launched targeted strikes on what it described as "terrorist camps" within Pakistan’s borders. These actions were taken in response to last month’s deadly attack in Kashmir, which claimed the lives of dozens of tourists. The Indian government emphasized that the strikes did not target military installations.

In a sharp response, Pakistan’s defense chief warned of an “imminent” confrontation, citing growing tensions over disputed river water rights and allegations surrounding the Kashmir incident. The flare-up has further elevated geopolitical risk, bolstering demand for safe-haven assets like gold.

Investor attention now turns to the upcoming Federal Open Market Committee (FOMC) decision. While the Fed is widely expected to leave interest rates unchanged, market participants will closely analyze Chair Jerome Powell’s press conference for any signals regarding the potential timing of future rate cuts.

Oil prices surged on Tuesday, recovering from a four-year low, as stronger demand signals from China and Europe, reduced U.S. production, and escalating geopolitical tensions supported a broad-based rebound. The rally also came amid bargain-hunting and short-covering, following a steep selloff driven by OPEC+’s recent decision to increase output.

Both benchmarks rebounded from technically oversold levels after Monday's sharp drop—their lowest closes since February 2021—triggered by OPEC+’s announcement to accelerate production increases for a second straight month.

The decision by OPEC+—which includes the Organization of the Petroleum Exporting Countries and allies like Russia—to speed up the easing of supply cuts has shifted market focus toward trade developments and broader geopolitical dynamics.

Oil prices also found support from signs of demand recovery in China, as consumer spending rose during the May Day holiday.

Meanwhile, the U.S. dollar weakened to a one-week low against a basket of major currencies, as investor patience wore thin over the pace of trade negotiations. A softer dollar makes dollar-denominated commodities like oil more affordable for international buyers, further underpinning prices.

U.S. stock index futures rebounded Tuesday evening after the U.S. government confirmed plans to resume trade talks with China later this week. However, gains remained capped as investors awaited the Federal Reserve’s interest rate decision later today.

Earlier declines in futures were reversed, with positive sentiment returning after Wall Street’s negative session extended into the after-hours trade.

The U.S. Treasury Department confirmed that Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet with Chinese officials in Switzerland on May 8 to restart high-level trade negotiations.

The announcement marks a potential turning point in U.S.-China relations, which had deteriorated significantly in April amid a renewed tariff escalation. Markets have been increasingly concerned about the economic fallout from a prolonged trade conflict between the world’s two largest economies.

The latest data from both the U.S. and China have shown signs of strain, reinforcing worries about trade-related disruption. Still, while the talks offer a glimmer of hope, President Donald Trump reiterated earlier on Tuesday that he is in “no rush” to finalize any trade deals.

The Federal Reserve is widely expected to keep interest rates unchanged at the conclusion of its two-day meeting on Wednesday. With the benchmark rate holding between 4.25% and 4.50%, investors are instead focused on Fed Chair Jerome Powell’s post-decision commentary for clues on future policy direction.