Gold Rises Due to Persisting Safe-Haven Demand
Gold (XAU/USD) price rose 0.8% on Tuesday as safe-haven demand remained strong amid growing concerns over US President Donald Trump's proposed trade tariffs and their impact on the global economy.
Apart from the uncertainty surrounding the US trade policy, a weaker-than-expected US Consumer Confidence report also boosted the gold price yesterday. In addition, the recovery may have also been due to a technical rebound in other assets following a technical downturn in the previous session.
"I think some of the biggest factors are Trump's comments yesterday in regards to tariffs ... and right now, the correlation with gold is a basket of geopolitics and inflation expectations", said Daniel Pavilonis, senior market strategist at RJO Futures.
Yesterday, Donald Trump announced his intention to impose tariffs on imported computer chips, pharmaceuticals, and steel, aiming to encourage producers to manufacture these goods in the US Investors view these policies as potentially inflationary and fear they could spark trade wars, further boosting safe-haven demand for gold. Fundamentally, gold remains in a bullish trend.
"We're not even that far away from all-time highs, so the upward momentum is there, we just need some kind of trigger to get it going", said Phillip Streible, chief market strategist at Blue Line Futures.
XAU/USD was flat during the Asian and early European trading sessions. Today's important event is the Federal Reserve (Fed) interest rate decision, due at 7:00 p.m. UTC. Traders expect the Fed to leave the rates unchanged. The main focus will also be on Fed Chair Jerome Powell's commentary as markets analyse the perspective of the US monetary policy for 2025. The market usually moves not because of the decision but because of the new details revealed in the FOMC Statement and during the press conference. If the Fed downgrades its economic forecast and Powell hints that more rate cuts are coming, XAU/USD will likely rise significantly. If the FOMC statement includes better economic assessments and the Fed chair makes hawkish statements or sounds less dovish, XAU/USD may drop slightly.
Strong US Dollar Continues to Pressure Euro
The euro (EUR/USD) lost 0.6% against the US dollar (USD) on Tuesday as the greenback strengthened on fresh tariff threats from the Donald Trump administration and despite weaker-than-expected US macroeconomic reports.
Yesterday's data revealed that US durable goods orders plunged by 2.2% in December instead of the expected 0.6% rise. However, non-defense capital goods orders—a key indicator of business investment plans—increased by 0.5%, following an upwardly revised 0.9% rise in November. In addition, Trump's threats to impose tariffs drove investors back into the safe-haven greenback.
"I think that there are two stories here that happened simultaneously, and one is kind of wearing off. The issues in the AI space were initially risk-off from an equity viewpoint. And that led the US dollar to appreciate against basically all high beta currencies and the Japanese yen and the Swiss franc did OK in that world because they're safe havens. Then came Trump's comments on tariffs, which affected currencies differently", said Steve Englander, head of G10 FX research at Standard Chartered Bank in New York.
Additionally, EUR/USD may have pulled back due to technical factors as the pair failed to confidently break above and close above the critical 1.05000 level for two consecutive days. Fundamentally, EUR/USD remains in a bearish trend as investors continue to expect the European Central Bank (ECB) to pursue a looser monetary policy in 2025 compared to the Federal Reserve (Fed).
EUR/USD was relatively unchanged during the Asian and early European trading sessions. Today, traders will monitor the Federal Reserve (Fed) interest rate decision at 7:00 p.m. UTC. Markets expect the Fed to leave the rates unchanged. The most important is Fed Chair Jerome Powell's commentary on the central bank's plans for US monetary policy in 2025. If the Fed downgrades its economic forecast and Jerome Powell hints that more rate cuts are coming, EUR/USD will likely rise significantly. If the FOMC statement reveals better economic assessments and Jerome Powell is hawkish or less dovish than the market expects, EUR/USD may drop slightly.
Canadian Dollar Declines Ahead of Two Interest Rate Decisions
The Canadian dollar (USD/CAD) lost 0.19% against the US dollar (USD) on Tuesday as markets anticipated a Bank of Canada's (BOC) interest rate cut. Also, renewed concerns over potential US trade tariffs strengthed the greenback.
Yesterday, Donald Trump said he was considering imposing tariffs on imported computer chips, pharmaceuticals, and steel to encourage producers to manufacture these goods in the US Previously, the president threatened to introduce 25% duties on imports from Canada on 1 February.
"The loonie (CAD) continues to trade in limbo, awaiting the crystallisation of US tariff risks. We continue to think that the president will follow through on his tariff threats, which should see a sharp loonie sell-off come Monday", said Nick Rees, senior FX market analyst at Monex Europe Ltd.
Fundamentally, there is not much of a divergence in monetary policy expectations between the Federal Reserve (Fed) and the Bank of Canada. Markets expect both banks to deliver roughly two 25-basis-point rate cuts in 2025.
USD/CAD was flat during the Asian and early European trading sessions. Today, USD/CAD will probably experience above-normal volatility as two central banks announce their interest rate decisions. Traders expect the BOC to cut the rate by 25 basis points and the Fed to leave the base rate unchanged. The main focus will also be on monetary policy statements and any new details revealed during the press conference. BOC press conference is due at 3:30 p.m. UTC, while the Fed chair will speak at 7:30 p.m. UTC. Generally, the market expects a hawkish Fed and a dovish BOC. Thus, any details and comments contradicting the market’s dominant view may provoke a sharp move in currency pairs.