Last Week’s Turmoil: Markets were driven by new US tariffs and surprisingly strong economic data that cemented US dollar dominance.
Policy Divergence: Central bank paths are splitting, with the Fed seen as patient while others are forced toward easing.
Upcoming Shutdown Risk: The primary focus for the week ahead is the Tuesday night deadline to avert a US government shutdown.
Pivotal Data Ahead: The US jobs report on Friday will be the ultimate test for Federal Reserve policy expectations.
Last Week: A Resilient US Economy and a New Tariff Shock
The final full week of September was largely marked by two potent and clashing themes: the ongoing robustness of the US economy and a fresh protectionist jolt from the White House. The story of US economic outperformance, which had been gathering steam since the Federal Reserve’s “hawkish cut” in the middle of the month, received a significant boost from a series of solid data points. On Thursday, September 25, fresh reports revealed second-quarter GDP growth was substantially revised higher to an annualized 3.8 percent, the fastest in nearly two years, while weekly jobless claims dropped to a two-month low of 218,000. This blend of strong data prompted investors to significantly pare back their wagers on the number of Fed rate cuts for the rest of the year, with the probability of a 50-basis-point cut by December plummeting from over 80 percent to roughly 60 percent. This sparked a potent, wide-ranging rally in the US dollar, which pushed the dollar index past the 98.4 mark to a one-month high.
This narrative, shaped by the data, took a complicated turn on Friday, September 26, when US President Donald Trump unveiled a fresh wave of tariffs. This included a 100 percent levy on imported pharmaceuticals and a 25 percent duty on heavy trucks. The announcement triggered focused volatility across global markets.
Sectoral Impact: Healthcare and industrial stocks were hit, with European firms like Novo Nordisk and Daimler dropping. Australian biotech giant CSL Ltd. also fell 1.9 percent.
UK Resilience: In a notable divergence, major UK drugmakers AstraZeneca and GSK rallied, as analysts concluded their significant US manufacturing presence insulated them from the tariffs, a perception that sent the British pound surging.
Commodity Reaction: Industrial metals like steel and zinc fell on fears of new EU-China trade barriers, while oil prices surged on geopolitical supply risks as Ukrainian drone strikes on Russian refineries prompted Moscow to curb fuel exports.
The week concluded with the Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge—coming in exactly in line with forecasts for August. This reinforced the view that there was no immediate need for drastic policy action from the Fed. This backdrop of economic resilience allowed US equity markets to snap a three-day losing streak to close the week higher as investors focused on the in-line inflation report and the reduced likelihood of a sharp economic downturn.
The Week Ahead: A Data Deluge and a Political Deadline
The coming week is shaping up to be a watershed moment for global markets. A packed calendar of heavy-hitting economic reports is on tap, ready to test the dominant story of US economic robustness and mold central bank thinking for the year’s final quarter. The main spotlight, though, is fixed squarely on politics. Tuesday, September 30, marks the cut-off point for US congressional leaders to hammer out a funding deal and sidestep a partial government shutdown.
Such a shutdown would put many government operations on ice and, crucially, could hold back the release of vital economic data, including the week’s big event: the September Non-Farm Payrolls report. This scenario would pump a good deal of uncertainty into markets and make the Federal Reserve’s decision-making process for its October meeting far more tangled. President Trump is slated to meet with congressional leaders on Monday, in what is seen as a final push to clinch a deal. The US dollar has already flinched at this risk, slipping from its peaks as the deadline looms.
Provided the data sees the light of day as planned, the week is going to offer a thorough check-up on the US economy.
Tuesday, September 30: The CB Consumer Confidence index and JOLTs Job Openings will provide crucial insight into the consumer mood and labor market tightness.
Wednesday, October 01: The ISM Manufacturing PMI will be closely watched for signs of whether the goods sector remains in contraction under the weight of tariffs.
Friday, October 03: The September jobs report will be the ultimate arbiter. A strong report would solidify the “US exceptionalism” narrative and further reduce Fed rate cut expectations, likely boosting the US dollar and pressuring stocks. A significant miss would reignite recession fears and send the dollar tumbling.
Beyond the US, several key international events will drive sentiment. The Reserve Bank of Australia is expected to hold rates steady on Tuesday, but its statement will be critical for the Aussie dollar. On the same day, China’s official PMI figures will offer a final data point on the health of its economy before a week-long national holiday. In Japan, the Tankan business survey will shape expectations for the Bank of Japan’s October 30 meeting, where a rate hike is now seen as a live possibility. Finally, the Reserve Bank of New Zealand’s interest rate decision on Wednesday, October 8, looms large for the week after, with a 25 or 50-basis-point cut widely expected to combat a deepening domestic recession.
A QUARTER OF CONFLICT AND REPRICING
The third quarter of 2025 was defined by the overwhelming influence of US economic data and trade policy, which triggered dramatic reversals and established clear winners and losers across global markets.
A “Whiplash” Quarter: The period was marked by violent reversals, particularly in the USD, which plunged on weak data before staging a powerful, data-driven rally in September.
Tariffs Drive Volatility: President Trump’s new tariffs created targeted volatility, directly punishing specific sectors in Europe and Australia, and contributing to a risk-off mood that benefited the USD.
US Economic Resilience: Surprisingly strong US economic data in September completely reshaped Federal Reserve expectations, tempering rate cut bets and fueling the dollar’s dominance.
Divergent Paths Emerge: Currencies diverged based on domestic fundamentals. The Kiwi was crushed by recession, the Aussie was whipsawed by inflation data, and a resilient UK market allowed the pound to defy the strong dollar.
Commodity Market Bifurcation: Geopolitical risks sent oil prices soaring, while fears of new trade barriers between the EU and China caused industrial metals like steel and zinc to tumble.