Gold Soars Toward Record High Amid Trade War Fears
The gold (XAU/USD) price reached a new all-time high of $2,817 on Friday as safe-haven demand remained strong due to geopolitical uncertainties and concerns over global economic growth amid US President Donald Trump's tariff plans.
There are concerns that some of the economic growth may come down because of the policies and tariffs that the current administration is looking to implement. So when you've got higher inflation and lower growth, stagflation becomes the economic theme. Gold tends to work very well in that particular environment', said Phillip Streible, chief market strategist at Blue Line Futures.
On Saturday, US President Donald Trump signed an order imposing new tariffs of 25% on goods from Mexico and Canada and 10% on imports from China. New trade tariffs may disrupt more than $2.1 trillion worth of annual trade, slow global economic growth, and push global inflation higher. Canada and Mexico, the top two US trading partners, immediately vowed retaliatory measures, and China said it would challenge Trump's levies at the World Trade Organization (WTO).
"I can see (gold) trying to reach up to that $2,900 level at some point during the first quarter; after we breach that, we'll set new levels. At some point this year, gold could ultimately trade north of $3,000", said Bob Haberkorn, senior market strategist at RJO Futures.
XAU/USD was declining during the Asian and early European trading sessions as the US dollar strengthened.
"Markets are looking rattled about the tariff dramas, and demand for safe-haven assets such as gold could look to limit the immediate downside though the soaring US dollar could be an inhibiting factor", said Tim Waterer, chief market analyst at KCM Trade.
Citi Bank noted that further tariff escalation would be bullish for gold, likely pushing prices towards $3,000.
"Spot gold may fall into a range of $2,735 to $2,751 per ounce, as a wave C from $2,614 may have completed", said Reuters analyst Wang Tao.
Today, Trump will discuss trade tariffs with the leaders of Canada and Mexico on Monday, so there is hope that a trade war can be avoided. Additionally, US ISM Manufacturing data is due at 3:00 p.m. UTC. However, news about trade tariffs will likely overshadow the formal macroeconomic report.
Euro Plummets as Trump's Tariffs Spark Global Trade War Fears
The euro (EUR/USD) lost 0.27% on Friday and plunged by an additional 1.27% on Monday morning after US President Donald Trump's tariffs on Canada, Mexico, and China triggered fears of a broad trade war.
Although the eurozone wasn't the primary target of new US trade tariffs, many fear it could be next as Trump repeatedly said he wants to correct a trade deficit between the US and the eurozone. Global equity markets dropped sharply on Monday morning, while the US Dollar Index (DXY) has increased, reaching a fresh one-month high as investors flocked into safe-haven assets. As a result, other major currencies, including the euro, declined. Such rapid moves usually correct fairly quickly after traders reassess the underlying fundamentals and realise the initial surge was unsustainable.
The long-term repercussions of the US decision to impose tariffs are rather uncertain and quite dangerous. A model gauging the economic impact of Trump's tariff plan from EY chief economist Greg Daco suggests it would reduce US economic growth by 1.5 percentage points this year and throw Canada and Mexico into a recession.
After reaching a 1.02100 low during the Asian session, EUR/USD recovered somewhat during the early European trading session. Today, traders should watch for any new developments around negotiations about trade tariffs. Trump will meet with the leaders of Canada and Mexico on Monday, so there is hope that a trade war could be avoided. Additionally, eurozone inflation figures are due at 10:00 a.m. UTC, and US ISM Manufacturing data is due at 3:00 p.m. UTC. Still, trade tariff developments will outweigh formal macroeconomic reports.
Australian Dollar Plunges After US Trade Tariffs Establishment
The Australian dollar (AUD/USD) finished Friday essentially unchanged against the US dollar (USD) but dropped by more than 1.5% on Monday morning, reaching a multi-year low.
The decision by US President Donald Trump to impose new trade tariffs on Canada, China, and Mexico sparked fears of a global trade war. It resulted in a classical risk-off move in the Forex market. As a risk-sensitive currency with strong exposure to China's economy, AUD plunged sharply as the markets opened on Monday. However, new tariffs will come into force on 4 February, so there is still hope that negotiations may achieve some settlement.
Fundamentally, AUD/USD appears to be oversold and undervalued, as monetary policy expectations haven't changed much from Friday. Therefore, a swift technical rebound is highly likely within the next 24 hours. Indeed, the latest Australian retail sales data came out better than expected, slightly correcting the dovish outlook for the Reserve Bank of Australia's (RBA) monetary policy.
Today, traders should monitor any developments in trade tariff negotiations. Additionally, US ISM Manufacturing data is due at 3:00 p.m. UTC. However, news about trade tariffs may overshadow formal macroeconomic reports.