New Tariffs Boost Gold Significantly
The gold (XAU/USD) price rocketed by over 3% on Wednesday. Investors flocked to the safe-haven asset in response to escalating US-China trade tensions triggered by additional US tariffs imposed by President Donald Trump.
XAU/USD recorded its largest daily gain yesterday since October 2023 as traders view gold as the ultimate safe-haven asset amid rising geopolitical uncertainty and macroeconomic instability. Yesterday, Trump authorised a 90-day pause on new tariffs for most countries while increasing tariffs on imports from China towards 125%. Concerns that tariffs would trigger inflation and impede economic growth led investors to seek safety in gold.
According to FOMC minutes, Federal Reserve (Fed) policymakers were nearly unanimous last month in warning that the US economy faces risks of higher inflation and slower growth. Some noted that 'difficult tradeoffs' may lie ahead.
"Gold continues to be seen as a hedge against instability here. We got a situation where tariffs are becoming a big problem, and you have inflationary expectations going higher, and that's manifested by higher yields", said Bart Melek, head of commodity strategies at TD Securities.
According to the CME Fed Watch tool, traders are now pricing in a 72% chance of a rate cut in June by the Fed.
XAU/USD rose during the Asian and early European trading sessions. Trade tensions continue to affect the market, so traders should monitor upcoming news about US tariffs. In addition, the upcoming US Consumer Price Index (CPI) report at 12:30 p.m. UTC may add extra volatility to all USD pairs, including XAU/USD. The market expects a 0.3% rise in monthly core inflation and a 3% annual increase in inflation. If the report reveals higher-than-expected inflation, XAU/USD may drop slightly. Data about slowing inflation will likely give XAU/USD a significant boost.
Trade Tariff Changes Affect Euro
Initially, the euro (EUR/USD) rallied strongly against the US dollar (USD) but later lost most gains and finished the day essentially unchanged.
Yesterday was quite a dramatic and volatile day for Forex traders as US President Donald Trump announced a 90-day pause in tariffs. He also lowered tariffs on all countries to 10% during those 90 days and increased duties on Chinese imports towards 125%. The US stock market rallied on the news, and general sentiment improved, but uncertainty remains. 'Markets can only sustain extreme conditions for so long before exhaustion sets in. The 90-day suspension does allow nice breathing room to allow negotiation to settle in, and market valuations have clearly been reset. Yet, the uncertainty for companies remains', said Carol Schleif, Chief Market Strategist at BMO Private Wealth.
Meanwhile, the sentiment inside the European Central Bank (ECB) remains rather pessimistic. According to Reuters, the ECB predicts a sharper-than-expected eurozone economic downturn triggered by trade tariffs. One senior official said that the worst-case economic scenarios are now unfolding in real time. José Luis Escrivá, the governor of the Bank of Spain and a member of the ECB's governing council, told the Financial Times that the tariffs imposed by Donald Trump were delivering a 'very significant negative shock on economic activity'.
Officials also stressed that the euro is an alternative to the US dollar in global trade and that trade disputes could affect the US dollar's status as a reserve currency. The ECB had earlier estimated that a full trade war with the US could reduce the eurozone GDP growth rate by 0.5 percentage points in the initial year. Fundamentally, the pressure on EUR/USD remains slightly bullish as investors believe that the Federal Reserve (Fed) will pursue a more dovish monetary policy than the ECB. However, these expectations can change at any point as the narrative surrounding global trade tariffs unfolds.
EUR/USD rose during the Asian and early European trading sessions. Today, investors and traders should continue monitoring news about trade tariffs as they can significantly shift market sentiment. Also, the US Consumer Price Index (CPI) report at 12:30 p.m. UTC may add volatility to all USD pairs, including EUR/USD. The market expects a 0.3% rise in monthly core inflation and a 3.0% annual increase. If the CPI numbers are higher than expected, EUR/USD may drop significantly. Otherwise, EUR/USD will likely rise slightly on lower-than-expected inflation data. Key levels to watch are resistance at 1.10150 and support at 1.09270.
CAD Rallies on New Updates of Trade Tariffs
The Canadian dollar (USD/CAD) gained 1.26% against the US dollar (USD) on Wednesday. Investors' sentiment improved following US President Donald Trump's decision to pause reciprocal tariffs for 90 days.
USD/CAD has been in a downward trend since the beginning of February as traders have become more bearish on the USD, fearing that the US economy will slow due to rising trade tariffs. Yesterday, CAD experienced the strongest rise in nearly three months as a sudden change in the US on tariffs bolstered the outlook for the global economy. The USD/CAD exchange rate is closely linked to commodity prices. Thus, when the prospect for the global economy improves, commodities—particularly crude oil—rally and USD/CAD drops.
"The global growth outlook looks better is the bottom line for the Canadian dollar right now. Extreme reciprocal tariffs were likely to create a worldwide recession, and now it's clear it was all a negotiating tactic", said Adam Button, chief currency analyst at ForexLive.
Also, Japan's Ministry of Finance said that Canada and Japan have agreed to cooperate to maintain stability in financial markets and the global financial system. As for the monetary policies, there is no noticeable divergence in monetary policy expectations between the Federal Reserve (Fed) and the Bank of Canada (BoC). Both central banks are currently expected to deliver roughly three 25-basis-point rate cuts in 2025.
USD/CAD fell during the Asian and early European trading sessions. Traders should continue monitoring US trade policies as any news can significantly shift market sentiment. Also, the US Consumer Price Index (CPI) report will come out at 12:30 p.m. UTC and add extra volatility to all USD pairs, including USD/CAD. The market expects a 0.3% rise in monthly core inflation and a 3.0% annual increase. If inflation is higher than expected, USD/CAD may rise significantly. If the CPI number is below the forecast, USD/CAD will likely fall slightly. Key levels to watch are resistance at 1.41500 and support at 1.40300.