Strong US Data Puts Pressure on Gold
The gold (XAU/USD) price dropped by 0.58% against the US dollar (USD) on Monday.
The US Dollar Index (DXY) continued to increase after the release of better-than-expected Purchasing Managers’ Index (PMI) report.
The survey from S&P Global on Monday showed US business activity picked up in March. The data also indicated that fears over import tariffs and deep government spending cuts weighed on sentiment. The benchmark services PMI substantially exceeded the market forecast, pushing the greenback higher and making gold more expensive for holders of other currencies.
"We’ve hit record after record, and now the market is just consolidating these gains, and this is enforced by somewhat higher US dollar. We’re looking at a level of about $3,150 plus, later in the year, that gold will likely strive to as the Fed [Federal Reserve] starts loosening monetary policy", said Bart Melek, head of commodity strategies at TD Securities.
Indeed, despite the risks of higher tariffs-driven inflation, the market still expects the Fed to continue cutting rates in 2025. Investors are currently pricing in a 26% chance of three 25-basis-point (bps) rate cuts by the end of the year.
Meanwhile, US and Russian officials met in Saudi Arabia to advance negotiations for a wider Ukrainian ceasefire. The US is also pushing for a separate Black Sea maritime ceasefire.
"If over the week the talks in Saudi Arabia do materialise and there is a dip in gold based off that, I expect it will be bought up fairly quickly", said Bob Haberkorn, senior market strategist at RJO Futures.
XAU/USD rose slightly during the Asian and early European trading sessions. Today, traders should focus on the news regarding Russia-Ukraine peace talks and developments around trade tariffs. In addition, the US CB Consumer Confidence report at 2:00 p.m. UTC may add extra volatility to all USD pairs. Higher-than-expected figures may push XAU/USD below $3,000, while lower-than-expected results may pull the pair above $3,028.
Strong US Data and Tariff Threats Weigh Down on Euro
The euro (EUR/USD) lost 0.15% against the US dollar (USD) on Monday as the greenback strengthened due to a better-than-expected US Purchasing Managers’ Index (PMI) report.
The S&P Global survey revealed that US business activity picked up in March. However, it also indicated that fears over import tariffs and deep government spending cuts continued to weigh on sentiment. Although the eurozone PMI also rose in March, the improvement was less significant than the US one. Still, the modest improvement in the eurozone’s business climate may accelerate in the coming months. Planned infrastructure and defense spending, especially in Germany, may boost hopes for an economic recovery.
Meanwhile, US President Donald Trump hinted there would be some flexibility regarding reciprocal tariffs that are set to take effect on 2 April. This hint raises hopes that the negative impact of tariffs on the eurozone economy may be less severe than expected. Thus, the news may support the EUR/USD exchange rate in the short term.
EUR/USD remained relatively flat during the Asian and early European trading sessions. Today, traders should focus on the news regarding Russia-Ukraine peace talks and developments around trade tariffs.
In addition, the US CB Consumer Confidence report will come out at 2:00 p.m. UTC and may add extra volatility to all USD pairs. Higher-than-expected figures may push EUR/USD down towards 1.07812, while lower-than-expected results may pull the pair higher towards 1.08450.
JPY Drops Despite Hawkish BOJ Stance
The Japanese yen (USD/JPY) lost 0.92% against the US dollar (USD) on Monday. The greenback strengthened after the release of the better-than-expected Purchasing Managers’ Index (PMI) report.
S&P Global’s flash US Composite PMI, which tracks the manufacturing and services sectors, increased to 53.5 this month, up from 51.6 in February. However, the survey also showed that fears over import tariffs and deep government spending cuts continued to weigh on investors’ sentiment.
USD/JPY had risen even before the PMI data was released. This is because Bloomberg News and the Wall Street Journal reported that the Trump administration was likely to exclude a set of sector-specific tariffs while applying reciprocal duties on 2 April.
"A wave of cautious optimism is washing across foreign exchange markets on hopes that next week’s US tariff announcement will prove less extreme than had previously been feared", said Karl Schamotta, chief market strategist at Corpay in Toronto.
Meanwhile, the minutes from the latest Bank of Japan (BOJ) policy meeting revealed that policymakers discussed the pace of raising interest rates further. Members agreed that real interest rates were at significantly low levels. Thus, the minutes showed that the BOJ planned to continue tightening monetary policy if the outlook for economic activity and prices was realized.
At the January meeting, the BOJ raised its short-term policy target by 0.25% towards 0.5%, the highest level since the 2008 global financial crisis. The bank also revised its price forecasts up, showing confidence that rising wages will keep inflation stable around its 2% target.
USD/JPY fell during the Asian and early European trading sessions. Today, the main macroeconomic data release is the US CB Consumer Confidence report at 2:00 p.m. UTC. Higher-than-expected figures may pull USD/JPY above 151.190, while lower-than-expected results may push the pair below 150.250.