The United States' renewed activity in the trade war—this time with the personal involvement of the American president—has significantly increased volatility in financial markets. The intensifying domestic political struggle within the U.S. itself is pushing Donald Trump to demonstrate at least some tangible results to present to voters ahead of the midterm congressional elections.

Many in the market are asking: why has Trump, who had quieted down somewhat in late spring and early summer, suddenly become so active again?

Under normal circumstances, this wouldn't be surprising. However, we are now experiencing a unique period where political and quasi-political/economic news are the primary market drivers. Trump's strategy to crush competitors and force them to submit to his terms—ones unfavorable to their countries—has already agitated the markets and could lead to unpredictable consequences. This is the core reason behind rising volatility. The president needs "wins" ahead of the parliamentary elections, and the main victims of this situation—at least economically—are global trade and financial markets.

Against this complex backdrop, market participants are operating like bomb disposal experts. While an apparent slowdown in U.S. economic growth—first and foremost seen in the weakening labor market, according to the latest Labor Department report starting from late spring—has already raised expectations of a Federal Reserve rate cut in September, the chaos surrounding the trade wars is preventing investors from acting decisively. For instance, they are hesitant to buy stocks of companies that might otherwise benefit from lower interest rates.

But despite the chaos, expectations for a more aggressive rate-cutting cycle continue to grow. On Monday, following Friday's market plunge, federal funds futures priced in just over an 80% probability of a 0.25% rate cut in September. Today, that figure has risen to 85.4%. This outlook is further reinforced by Trump's unprecedented, arbitrary pressure on the Fed and his desire to replace the current chair, Jerome Powell, with someone more compliant—someone, as Trump previously stated, who would lower rates to 1%, allegedly to support domestic manufacturers.

What could this lead to in the markets?

Currently, the only factors holding back demand for stocks and the significant weakening of the dollar are the chaos surrounding tariff policies. Once that situation stabilizes—even slightly—and new U.S. economic data points to negative trends, we could see an explosive demand for equities. In this scenario, I do not expect strong interest in cryptocurrencies, which would be less attractive than stocks. The dollar would remain under pressure, though it is unlikely to experience a sharp drop on the Forex market against major currencies, primarily due to those currencies' weakness amid the exploitation of U.S. satellite countries by their suzerain.

What can we expect from the markets today?

Most likely, the general sideways movement will continue. After yesterday's decline in equity markets, we are already seeing a rebound in Asian and European trading. The same can be expected in the U.S., judging by the dynamics of futures on the main American stock indices. Following yesterday's slight increase, the dollar may also decline slightly.

Overall, considering the current market situation, I believe the chaos will persist until some reasonable agreements on tariff policy are reached between the U.S. and its trade partners.

Daily Forecast:

EUR/USD

The pair is consolidating below the resistance level of 1.1590. A breakout above that level, especially amid a potential local rally in U.S. equities, could push the pair up to 1.1640. A good buy entry could be around the 1.1600 mark.

GBP/USD

The pair is also consolidating below the resistance level of 1.3315. A breakout above this level, amid a possible local rally in U.S. stocks, could push the pair up to 1.3400. A good buy entry could be around the 1.3325 mark.