Gold Moves Within a Tight Range Ahead of the US Election Results
Gold (XAU/USD) has been moving within a narrow range for the past few days ahead of the US election results. The current price range is $2,730–$2,750.
According to preliminary results from Edison Research, Donald Trump has won in 14 states, while Kamala Harris has received the majority of the votes in 4 states and Washington, DC. However, the final results may be announced within several hours or days. Analysts expect that gold will benefit in the longer term from Trump's victory, primarily due to increased expected costs and potential uncertainty in US foreign policy under his administration.
Another significant event for investors to watch is the two-day Federal Reserve (Fed) policy meeting ending on Thursday. Fed Chairman Jerome Powell may give future guidance on the monetary policy at the meeting and the press conference. The market expects the Fed to reduce interest rates by 25 basis points (bps) this week. However, if Donald Trump wins the presidential election, the Fed may limit its rate reduction program due to concerns about the inflationary impact of Trump's economic policies. Meanwhile, US trade deficits surged to their highest levels in September of nearly two and a half years.
XAU/USD is awaiting the election results, so strong volatility will likely persist in the market. The election outcome will depend on the direction of the Fed's interest rate path. According to forecasts, XAU/USD is expected to continue moving within the $2,730–$2,750 range. The pair will need a catalyst to break one of these boundaries.
Euro Drops as Global Investors Price In Trump's Victory
The euro (EUR/USD) gained 0.49% against the US dollar (USD) on Monday (NASDAQ:MNDY) as some investors exited long positions in the US Dollar Index (DXY) due to the uncertainty around the US presidential election. However, EUR/USD totally plunged earlier today as Donald Trump was on track to secure a decisive victory while Republicans were likely to keep control of the Senate.
Yesterday, the US ISM Nonmanufacturing Purchasing Managers' Index (PMI) figures were higher than expected. Still, the data had little impact on the market as investors were entirely focused on the results of the US presidential and congressional elections. By 5:00 a.m. UTC, most data providers projected that Donald Trump would become the next president. Republicans won an extra seat in the Senate, but neither of the parties had a clear advantage in the battle for the House of Representatives. Even as Trump's victory looks almost guaranteed at this point, the balance of power in Congress will determine how successfully and effectively he will govern.
EUR/USD was down by more than 1.5% by 5:00 a.m. today. The primary reason for a dramatic decline is that investors fear that Trump's policies on immigration and taxes will spur inflation and force the Federal Reserve (Fed) to tighten its monetary policy. In addition, Trump has repeatedly threatened to impose tariffs on certain European goods like autos and chemicals. According to some analysts, Trump's proposed 10% universal tariff on all US imports may erode Europe's gross domestic product by up to 1.5% or about €260 billion.
Overall, election results counting is still in a relatively early stage, and results may be finalised in hours or even days. The contest will come down to seven swing states, with Trump winning in only one state—North Carolina. Therefore, volatility in the EUR/USD may remain elevated for a couple of days. The pair seems to have established a new trading range of 1.07000–1.08000. If Republicans secure full control of Congress, EUR/USD may break below 1.07000 and head lower towards 1.06600. Conversely, some speculators may buy the dip, hoping for a technical rebound as news of Trump's probable victory has been digested and largely priced in.
Japanese Yen Skyrockets on US Election Preliminary Results
The Japanese yen (USD/JPY) declined yesterday by 0.36% as market participants had been waiting for the US election results.
The US stock futures and the US dollar (USD) rose on Wednesday morning. Some investors suggested that Donald Trump might win the presidential election, but the race was still too tight to determine who would become the president. According to the New York Times (NYSE:NYT), Trump has an 89% chance of winning. However, swing states could significantly influence the outcome of the election. Meanwhile, bond yields rose to four-month highs, and some market participants placed bets on Trump. Analysts believe that Trump's proposals on immigration, taxes, and tariffs could lead to higher inflation and interest rates than those proposed by Harris. Despite the uncertainty, the market still expects the Federal Reserve to lower interest rates by 25 basis points (bps) on Thursday. As early results emerged, Treasury yields, the US dollar, and Bitcoin strengthened—a 'classic Trump trade', according to Brian Jacobsen, Chief Economist at Annex Wealth Management.
If Trump wins, the Japanese yen (JPY) is expected to keep falling against the US dollar. That could cancel out the pair's gains from the Bank of Japan's (BOJ) expected rate hikes, says Masahiro Ichikawa from Sumitomo Mitsui (NYSE:SMFG) DS Asset Management. He states that even if the BOJ raises interest rates again, it won't be as fast as people expect. Trump's policies will also slow the Fed's rate cuts, impacting USD/JPY.
USD/JPY gained 1.47% during Asian and early European trading hours. The US Dollar Index strengthened on the possibility of Trump's victory. There are no more key events for the pair today besides the US elections. Tomorrow, the Fed interest rate decision at 7:00 p.m. UTC will affect USD/JPY.