Gold Rises as the US Dollar Weakened After Trump's Inauguration
Gold (XAU/USD) price rose by 0.24% on Monday, supported by a weaker US dollar (USD), as markets evaluated the possible economic impact of US President Donald Trump's policies after his inauguration.
"I believe Donald Trump (presidency) will result in higher market volatility. This should continue to support safe-haven assets like gold", UBS analyst Giovanni Staunovo said.
At the same time, Trump's policies also may put a bearish pressure on metals. His new trade tariffs and immigration policy might stimulate inflation, prompting the Federal Reserve (Fed) to keep rates higher for longer and reducing the appeal of non-yielding gold.
Trump considers 10% tariffs on global imports, 60% on Chinese goods, and 25% import surcharge on Canadian and Mexican products. If implemented, these tariffs will increase import prices, which will push the US Consumer Price Index (CPI) higher. Currently, the market expects the Fed to deliver only one or two rate cuts in 2025 due to inflation risk.
XAU/USD was rising strongly during the Asian and early European trading sessions as the US dollar weakened. There has been growing speculation that Trump would impose new tariffs on the first day of his presidency. Today's drop in USD is likely due to a relief that Trump hasn't focused on tariffs thus far. The formal macroeconomic calendar is rather uneventful today, but traders should continue monitoring the development in Washington as Trump signs more executive orders.
"Spot gold may break resistance at $2,728 per ounce and rise into the $2,738 to $2,754 range", said Reuters analyst Wang Tao.
Euro Rockets After Trump's Inauguration
The euro (EUR/USD) jumped by 1.39% against the US dollar (USD) on Monday after it became clear that Donald Trump's administration won't immediately impose trade tariffs. This prompted a rally in some US trade partners' currencies, including the eurozone.
Market participants had been expecting Trump to announce trade tariffs via executive orders right after his inauguration. Such a move would have increased US inflation expectations, prompting the Federal Reserve (Fed) to slow or even pause its rate-cutting campaign. However, no new tariffs were announced, and the US dollar immediately plunged, following a 'buy the rumours, sell the news' dynamic.
"There is a relief rally in foreign currencies right now. Even though Trump didn't specify, it's very clear that when he says that the US is going to be a big auto manufacturer, he's talking about tariffs. So whether he imposes them on Day 1, or Day 5, or Day 10, I'm not sure it makes that much of a difference", said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Talking to reporters on Monday, Trump said he would remedy the trade imbalance between the US and the eurozone either through tariffs or by Europe buying more US oil and natural gas.
EUR/USD was falling during the Asian and early European trading sessions. The strategy of selling the rallies in EUR/USD, which has been in place since early November, appears to work well. Fundamentally, the eurozone economy continues to face challenges such as high energy costs and deindustrialization, while the European Central Bank (ECB) is expected to pursue a more dovish monetary policy in 2025 compared to the Fed. The macroeconomic calendar is rather uneventful today, but traders should pay attention to the development in Washington as Trump signs more executive orders. Key levels to watch are resistance at 1.04470 and support at 1.03550.
'Relief Rally' Pushes the Canadian Dollar Higher
The Canadian dollar (USD/CAD) gained 1.22% against the US dollar (USD) on Monday as the greenback weakened after it became clear that Donald Trump's new administration won't immediately impose trade tariffs.
USD/CAD declined yesterday due to what traders call a 'relief rally'. The market has been widely expecting Trump to announce new trade tariffs as soon as he takes office. He didn't, and the bull bets on the US dollar were immediately closed, prompting a rally in other currencies. Still, CAD continues to face devaluation risks.
On Monday, Donald Trump said he was thinking of imposing 25% tariffs on imports from Canada and Mexico because 'they were allowing many people to cross the border as well as fentanyl'. Indeed, according to Goldman Sachs, the oil market is already pricing in a nearly 40% probability of 25% US tariff on Canadian goods, including oil. If implemented, tariffs will almost certainly have a bullish impact on USD/CAD. At the same time, because the pair is already near its new multi-year highs, it's relatively risky to expect a further rise.
USD/CAD was rising during the Asian and early European trading sessions and almost recovered all yesterday’s losses. Today, traders should continue monitoring Washington's development and more executive orders Trump signs. In addition, Canadian inflation data will come out at 1:30 p.m. UTC. Higher-than-expected figures may trigger another bearish correction in USD/CAD. Conversely, lower-than-expected results may pull the pair towards a new multi-year high. Key levels to watch are resistance at 1.45410 and support at 1.43600.