Weekly Recap – Powell: Tariffs Create “No Risk-Free Path”

The U.S. economy’s surprising vigor, with Q2 GDP revised to 3.8% and August consumer spending up 0.4%, paints a picture of resilience that defies slowdown fears. Yet, new tariffs—100% on pharmaceuticals, 50% on cabinets—aren’t mere blips; they’re a bold bet that could fuel inflation and unravel supply chains, turning short-term wins into long-term headaches. Unlike past trade skirmishes, this round hits amid sticky 2.7% PCE inflation and labor market cooling, making the stakes higher. The provocative truth: tariffs might boost domestic manufacturing, but they risk derailing global recovery if retaliation escalates, forcing central banks into reactive mode.

U.S. Stocks Hit Peaks but Face Tariff Turbulence

Wall Street scaled new heights early in the September 22-26 week, driven by robust data like 218,000 jobless claims and PCE inflation aligning with expectations. The S&P 500 reached intraday records on Monday, up 0.44%, before closing down 0.3% at 6,644 amid three losing sessions. The Dow gained 0.70% Friday to 46,247, with Paccar jumping 4% on domestic advantages, while Nasdaq fell 0.7% to 22,484 as AI fervor waned—Oracle dropped 5%.

Federal Reserve Chair Jerome Powell’s cautious signals post-0.25% rate cut, stressing no “risk-free path” with tariff-induced inflation, curbed easing enthusiasm. Markets price 89.8% odds for an October cut, but stronger GDP suggests moderation. Opposing views claim shutdown risks at 76% could stall momentum, yet evidence points to underlying strength outweighing temporary shocks—for now.

Global Markets Diverge Under Trade Pressures

Asian stocks slumped as tariffs targeted exports like pharmaceuticals and machinery. Nikkei fell over 2%, Hang Seng 3% to 26,128, with Samsung down 4% and SK Hynix 6% on semiconductor threats. Shanghai ended flat despite PBoC stability. This export pain contrasts Fed optimism, risking Beijing retaliation and deeper fragility.

European bourses mixed but advanced modestly; STOXX 600 up 0.2% to 551.35, buoyed by tech despite auto drags. ECB President Christine Lagarde’s rate hold at 2% aids recovery, but U.S. trade spats cloud forecasts. The argument: Europe’s steadiness may outlast Asia’s vulnerabilities, but ignoring cross-Atlantic tensions invites broader drags.

Crypto and Commodities Ride Macro Waves

Bitcoin endured a brutal “Red September,” dipping below $110,000 mid-week to $109,662—down 5% weekly—amid $1.7 billion liquidations and $22 billion options expiry. Ethereum tumbled 12% to $3,922. Powell’s hawkish undertones and shutdown fears amplified dollar strength, yet Q4 history suggests rebounds.

Gold soared to $3,778.85, up 0.78%, on easing bets despite yields at 4.185%. Oil hit highs—Brent $70.13 (1.02%), WTI $65.72 (1.14%)—on Russian curbs and U.S. draws, but tariffs threaten demand. The yen strengthened to 149.50/USD on BoJ hike talks, euro rose 0.4% to 1.1799 amid ECB inflation stability, pound dipped to 1.3405 on BoE Governor Andrew Bailey’s spending concerns, dollar index fell 0.4% to 97.33, and Swiss franc firmed 0.38% to 0.792 as a haven amid Fed independence worries.

Amid this tariff-tightrope demands sharp awareness—resilience today doesn’t shield against tomorrow’s shocks. Investors and traders, maintain reasonable caution and stay fully informed to weather the storm.

Currencies

The performance of major currencies in late September 2025 reflects a complex interplay of inflation data, central bank signals, and shifting perceptions of safe-haven assets amid geopolitical and policy uncertainties. The US dollar (USD) experienced notable weakness, declining against key peers like the euro (EUR) and Japanese yen (JPY), driven by US inflation figures aligning with or below expectations—such as core PCE rising only 0.1% in August—and softening consumer confidence, which fueled market bets on further Federal Reserve rate cuts, potentially twice more before year-end. This USD retreat supported the yen’s rebound from 1.75-month lows, despite Japan’s underwhelming Tokyo CPI data (core at 2.5% vs. expected 2.9%), reinforcing expectations of continued Bank of Japan easing. Similarly, the euro strengthened by 0.4% against the USD, bolstered by upward revisions in Eurozone inflation expectations (to 2.8% annually) and ECB reports signaling policy divergence, with the ECB seen as done with rate cuts while the Fed eases further. The British pound (GBP) faced downward pressure, slipping after Bank of England Governor Andrew Bailey hinted at potential rate reductions amid slowing UK consumer spending and PMI data (services at 51.9 vs. expected 54.2), highlighting domestic economic softening.

Fundamentally, these movements underscore broader trends in monetary policy divergence and eroding confidence in traditional safe havens. The USD’s role as a reserve currency is under scrutiny due to political pressures on Fed independence, including President Trump’s attempts to influence appointments, prompting warnings from figures like Bank of Canada Governor Tiff Macklem about diminished hedging efficacy. The yen, while benefiting from USD weakness, remains hampered by Japan’s persistent low inflation and ultra-loose policies, contributing to its volatile performance. Emerging as a stronger alternative, the Swiss franc (CHF) gained traction for its institutional stability and conservative Swiss National Bank stance, attracting investors amid global uncertainties. Overall, currencies like the EUR and CHF appear positioned for relative outperformance if inflation stabilizes above targets in Europe, while the USD and JPY could face further headwinds unless US data surprises positively or Japan shifts toward tightening, with markets eyeing upcoming Fed speeches.

The upcoming week will feature a series of prominent economic and political events, with a U.S. focus on the labor market, where the Job Openings and Labor Turnover report is released on September 30, followed by private payroll data from ADP and the ISM Manufacturing Index on October 1, then weekly unemployment claims on October 2, and finally the monthly jobs report for September on October 3, which could influence Federal Reserve policies.