The price of gold (XAU/USD) increased by 0.45% on Monday, hitting a record high. Investors sought a safe haven amid growing concerns over inflation and economic slowdown, fuelled by US President Donald Trump's tariffs on Canada, China, and Mexico.
Donald Trump later agreed to a 30-day pause in tariffs' implementation for Mexico and Canada in return for concessions on border and crime enforcement. Still, tariffs on China are due to take full effect shortly.
"The market isn't fully convinced about the extent of the trade war. We haven't seen a complete response from gold, and if this trade war continues for a considerable period, it could lead to significantly higher gold prices down the road", said Bart Melek, head of commodity strategies at TD Securities.
Indeed, because gold is considered a safe-haven asset during periods of economic or geopolitical instability and used as an inflation hedge, it usually rises when traditional assets like stocks or bonds are perceived as risky.
J.P. Morgan, a US investment bank, said that bearish contagion from equities could weigh on gold in the near term, but disruptive tariffs will be bullish for bullion in the medium term. Still, there are risks that XAU/USD may be getting somewhat overvalued as the strong US dollar has made gold rather expensive for holders of other currencies, while the US Federal Reserve (Fed) isn't expected to cut interest rates for another three months or so.
XAU/USD was relatively unchanged during the Asian and early European trading sessions. Today, traders should focus on any new developments around US tariffs. Donald Trump said that discussions of tariffs with China will likely commence later today. In addition, the US JOLTS Job Opening report, due at 3:00 p.m. UTC, will shed some light on the state of the US labour market. Better-than-expected figures may temporarily pause the rally in XAU/USD, while worse-than-expected results may give the pair an additional boost.
"Spot gold may rise into a range of $2,859 to $2,891 per ounce as it has broken resistance at $2,812", said Reuters analyst Wang Tao.
Euro Continues to Be Under Bearish Pressure
The euro (EUR/USD) lost 0.17% against the US dollar (USD) during Monday's volatile trading session.
Initially, the US Dollar Index (DXY) surged to a one-month high, dragging other major currencies down. The rally was due to US President Donald Trump imposing tariffs on Canada, China, and Mexico, triggering fears of an escalating trade war. However, the duties on Canada and Mexico were paused for one month, improving investors' risk sentiment and pushing the greenback lower. Still, EUR/USD recovered only marginally as the currency remains very sensitive to trade-related shocks. The euro faces pressure due to its exposure to global trade dynamics and the potential ripple effects of Trump's tariffs on European economies.
Furthermore, the eurozone is underperforming relative to the US economy. Yesterday's US ISM Manufacturing Indices highlighted the persisting resilience of the American manufacturing sector, potentially signalling stronger economic growth compared to the more sluggish performance observed in the eurozone. Higher-than-expected eurozone inflation figures released yesterday also failed to pull EUR/USD above the critically important 1.03500 level.
EUR/USD was falling during the Asian and early European trading sessions. Today, traders should focus on any new developments around US tariffs. In addition, the US JOLTS Job Opening report will be released at 3:00 p.m. UTC and may give insight into the state of the US labour market. Better-than-expected figures may push EUR/USD even lower, while worse-than-expected may temporarily lift the currency above the important 1.03500 level.
Yen Remains Relatively Stable Despite US Trade Tariffs
On Monday, the Japanese yen (USD/JPY) fluctuated between 154.000 and 156.000 against the US dollar (USD) but finished the day essentially unchanged.
JPY has partly benefited from its safe-haven status amid developments around US trade tariffs, which threaten to potentially disrupt global supply chains. However, USD/JPY remains in a mid-term downtrend, which began on 10 January after the market started to price in a more hawkish monetary policy by the Bank of Japan (BOJ). At the same time, the Japanese economy is heavily reliant on global trade and is particularly exposed to any US–China trade tensions. Thus, Japan will likely face capital outflows as investors seek safer assets amidst escalating trade disputes and heightened economic uncertainty, potentially impacting the value of the Japanese yen and overall economic stability.
Earlier on Tuesday, China introduced tariffs on US imports in a rapid response to new US duties on Chinese goods, renewing a trade war between the world's top two economies.
"China's calibrated retaliatory measures — targeting energy, agriculture, and machinery — aim to pressure key US export sectors while mitigating domestic inflation risks. Our analysis aligns with estimates of asymmetric growth impacts: US GDP could slow by 0.8–1.0 percentage points in 2025, versus a more contained around 0.4-point drag for China, reflecting its trade diversification since 2018", said Shier Lee Lim, Lead FX & Macro Strategist for APAC, Convera in Singapore.
USD/JPY was rising during the Asian and early European trading sessions. Today, traders should monitor any new developments regarding US tariffs. Also, the US JOLTS Job Opening report will come out at 3:00 p.m. UTC, possibly providing more details on the state of the US labour market. Better-than-expected figures may pull USD/JPY slightly higher, while worse-than-expected results may push the pair below the 155.000 level.