Rising Economic Uncertainty Supports Demand for Gold
The gold (XAU/USD) price failed to rally on Tuesday and finished the trading session essentially unchanged as US Treasury yields continued to rise.
Still, the weakening US dollar (USD) and escalating trade tensions between the US and China continue supporting gold prices. Investors now seek safe-haven assets amid global geopolitical and macroeconomic uncertainty.
"Despite falling for three consecutive sessions, gold remains bullish with trade tensions and the prospect of lower US interest rates boosting its allure. A solid breakout above $3,055 may open the doors back toward $3,100 and $3,130. Sustained weakness below $3,000 could see gold slip toward $2,950 and $2,930", said Lukman Otunuga, senior research analyst at FXTM.
Following US President Donald Trump's 2 April announcement of reciprocal tariffs, worries about a global trade war have intensified. Moreover, reports emerged yesterday that the US will impose a significant 104% tariff on Chinese goods after Beijing failed to remove its retaliatory tariffs on US products. The US dollar has been falling, making bullion less expensive for other currency holders. In addition, investors now have a rather dovish view of the Federal Reserve's (Fed) future monetary policy, providing an additional fundamental boost to XAU/USD.
"The significant rise in rate cut expectations in recent days suggest that the gold price will soon rise again", Commerzbank said in a note.
XAU/USD rose during the Asian and early European trading sessions. The market will now pay close attention to any tariff-related news. Furthermore, traders are looking forward to the FOMC minutes from the Fed's latest policy meeting. The minutes will come out at 6:00 p.m. UTC today and may give more clues on the path of US interest rates.
Trade Tariffs Weaken US Dollar and Support Euro
The euro (EUR/USD) gained 0.48% against the US dollar (USD) on Tuesday following reports that German political parties agreed to form a coalition. Meanwhile, the US dollar weakened against major currencies due to fears of recession.
There is conflicting information regarding the formation of a German government. NTV, a German news network, reported that Friedrich Merz's conservatives and the centre-left Social Democrats (SPD) had agreed to form a coalition. However, Reuters stated that its sources claimed no such deal had been reached. Following the recent German election, investors closely monitor political developments in the country. They are concerned that disagreements between parties could prevent the formation of a stable coalition and lead to a dysfunctional government in Europe's largest economy. These fears have been alleviated now, driving bullish sentiment in EUR/USD.
Fundamentally, investors have been concentrated on the trade conflicts initiated by US President Donald Trump's extensive tariffs, which have completely disrupted the markets lately. A full-scale trade war would harm the eurozone economy. Still, the current investors' flight to safe-haven currencies like the Swiss franc and the Japanese yen weakens the US dollar, pushing the EUR/USD exchange rate higher.
EUR/USD rose during the Asian and early European trading sessions. The market now expects more tariff-related news. Today, the most important event is the FOMC minutes from the Federal Reserve’s (Fed) latest policy meeting at 6:00 p.m. UTC. The report will probably give more clues on the path of US rate cuts. The market now expects the Fed to pursue a more dovish monetary policy than the European Central Bank, which should support EUR/USD in the mid-term.
Japanese Yen Rises on Strong Safe-Haven Sentiment
The Japanese yen (USD/JPY) gained 1% against the US dollar (USD) on Tuesday. The greenback continued to weaken amid fears of global recession, and investors rushed towards the safe-haven Japanese yen.
Financial markets are bracing for a protracted trade conflict between the US and China. Beijing has resolutely refused to concede to what it has characterised as 'blackmail'. The government declared its intention to 'fight to the end' in response to President Trump's threat to elevate tariffs to 104% due to China's decision to impose equivalent duties following Trump's tariff announcement last week. As a result, the Japanese yen and the Swiss franc benefited from the appetite for safe-haven assets, as investors remain concerned about the potential for a global recession.
Meanwhile, Katsunobu Kat, Japanese Finance Minister, said that trade negotiations between Japan and the US could include discussions on foreign exchange rates.
"There has been various communication, including on exchange rates, from the US side, so currency moves could be among themes up for discussion. But specifics have yet to be set", Kato told parliament.
With President Donald Trump prioritising the reduction of the large US trade deficit, some analysts suggest that Washington could pressure Japan to reverse the yen's decline, which happened over the past decade, as it provides a competitive edge to Japanese exports. In theory, it means that USD/JPY may continue to decline further.
USD/JPY fell during the Asian session but started to rise again during the early European trading hours. Today, the market will pay close attention to any tariff-related news. Also, traders are looking forward to FOMC minutes from the Federal Reserve's latest policy meeting. The report will come out at 6:00 p.m. UTC and may offer more clues on the US monetary policy plans. If the minutes suggest a dovish sentiment among FOMC members favouring more rate cuts, USD/JPY may fall below 144.200. Conversely, a more hawkish tone could pull USD/JPY higher towards 146.700.