Gold Continues Moving Upwards
The gold (XAU/USD) price rose by 0.64% on Friday as the US dollar (USD) weakened after US President Donald Trump called for lower interest rates, while the uncertainty around trade tariffs persisted.
"Trump is at risk of elevating prices, and I think the gold market perceives perhaps a higher inflation and possibly a central bank that's more accommodative", said Bart Melek, head of commodity strategies at TD Securities.
Indeed, the probability that the Federal Reserve (Fed) will cut the rates by 25 basis points (bps) in June has increased towards 45%. Markets are also on high alert for potential trade policy changes, as Trump said that tariffs on goods from Mexico, Canada, China, and the European Union could be announced on 1 February.
XAU/USD was falling during the Asian and early European trading sessions. The formal macroeconomic calendar is rather uneventful today. However, the US New Homes Sales report, due at 3:00 p.m. UTC, may potentially trigger above-normal volatility. Lower-than-expected results may pull XAU/USD slightly higher, while higher-than-expected figures may push gold below $2,750.
"Spot gold may drop into a range of $2,726 to $2,743 per ounce, as it failed to break key resistance at $2,783", said Reuters analyst Wang Tao.
Easing Fears of Trade Wars Push Euro Higher
The euro (EUR/USD) rallied by 0.75% against the US dollar (USD) on Friday as the greenback weakened on expectations that tariffs enacted by US President Donald Trump would be lower than previously anticipated and are unlikely to precipitate an international trade war.
Fears of high tariffs on goods from China, Canada, Mexico, and the eurozone have recently driven US Treasury yields and the US dollar higher due to concerns about renewed inflation. However, this trend partially reversed last week as traders became less concerned about the scale and scope of potential tariffs. This shift followed US President Donald Trump's remarks, indicating optimism about reaching a trade deal with China. 'People are less and less convinced that the tariffs are coming', said Adam Button, chief currency analyst at ForexLive in Toronto.
At the same time, the market's focus shifted to the direction of the Federal Reserve's (Fed) monetary policy. Trump has explicitly stated that he wants US interest rates to be lower. According to the CME FedWatch Tool, the probability that the Fed will cut the rates by 25 basis points (bps) in June has increased towards 45%, pressuring the greenback and pulling other major currencies higher.
"Some of the retrace in the greenback this week was likely due to technical reasons, after its 10% rise since the end of September", said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
He added: "A lot of good news for the US is priced in". A test for the US dollar may come next week if the Fed holds rates steady and the European Central Bank, Bank of Canada, and Swedish Riksbank all cut rates, Chandler said.
EUR/USD was falling during the Asian and early European trading sessions. Today, the formal macroeconomic calendar is rather uneventful, so no big moves in EUR/USD are currently anticipated. However, US New Homes Sales data coming out at 3:00 p.m. UTC may trigger increased volatility in the market. Lower-than-expected results may pull EUR/USD slightly higher, while higher-than-expected figures may push the pair below 1.04350 level.
British Pound Rises on a Weakening US Dollar
The British pound (GBP/USD) gained more than 1% against the US dollar (USD) on Friday. The greenback weakened amid growing expectations that US tariffs would be less severe than anticipated, reducing the likelihood of a global trade war.
Better-than-expected U.K. Purchasing Managers' Indices (PMIs) data and lower-than-expected US PMIs also fuelled Friday's GBP/USD rally. In addition, Friday's reports revealed that US consumer sentiment weakened in January for the first time in six months amid worries about the labour market and potentially higher prices for goods.
Still, the British economy suffers from lacklustre growth and a weakening jobs market.
"Today data release won't alleviate the Bank of England's (BOE) concerns about the weakness of activity. We still think the Bank will cut interest rates from 4.75% now to 4.5% in February, but the strengthening in price pressures suggest it will cut rates only gradually thereafter", said Elias Hilmer, economist from consultancy Capital Economics.
Interest rate swaps market data currently implies more than a 40% chance that the British central bank will reduce its base rate towards 4.5% by mid-June.
GBP/USD was falling slightly during the Asian and early European trading sessions. Today's economic calendar is rather uneventful, so no big moves in EUR/USD are anticipated. Still, the US New Homes Sales report at 3:00 p.m. UTC may trigger increased volatility. Lower-than-expected numbers may push GBP/USD slightly higher, while higher-than-expected figures may bring the pair below 1.24400.