Gold Breaks Above $2,900 on Trade War Fears and Inflation Concerns
The gold ( XAU/USD ) price surged by 1.64% on Monday, breaking through the key $2,900 level as safe-haven demand increased after US President Donald Trump introduced new tariffs.
Trump imposed an additional 25% tariff on all steel and aluminium imports. He also said he would announce reciprocal tariffs on several countries later this week, further fuelling fears of a global trade war. Investors worry that tariffs may exacerbate US inflation and increase geopolitical tensions worldwide. As a result, gold, considered a hedge against inflation and political instability, has been rising almost uninterruptedly for the past two months.
"Obviously, the tariff war is behind the rise; it just reflects more uncertainty and more tension in the global trade situation", said Marex analyst Edward Meir.
According to Reuters, bullion has already hit its seventh record high this year, driven by Trump's tariff threats. These threats have fuelled uncertainty over global growth, trade wars, and high inflation, prompting investors to turn to gold as a safe-haven asset. Phillip Streible, chief market strategist at Blue Line Futures, said gold's 45-degree rally since December might create a self-fulfilling prophecy of further price increases, potentially leading it to raise its forecast towards around $3,250 or $3,500.
Earlier today, XAU/USD continued to rise during the Asian session but lost some gains during the early European trading hours.
"Spot gold may extend gains into $2,950 to $2,962 per ounce before reversing its uptrend", said Reuters analyst Wang Tao.
Today and tomorrow, Fed Chairman Jerome Powell will testify before Congress. Traders should monitor his remarks for future guidance on US monetary policy changes. The testimony will commence at 3:00 p.m. UTC. Also, investors should pay attention to US reports this week: the Consumer Price Index (CPI) and the Producer Price Index (PPI). The data may influence the Federal Reserve's (Fed) monetary policy, impacting the US dollar and gold prices.
US Trade Tariffs May Slow the Eurozone's Economic Growth
On Monday, the euro ( EUR/USD ) lost 0.2% against the US dollar (USD) due to concerns about the impact of new trade tariffs that the US might impose on the E.U.
The US dollar gained on Monday after US President Donald Trump pledged to impose 25% tariffs on all steel and aluminium imports. Apart from increasing the general macroeconomic uncertainty, resulting in higher safe-haven flows into the greenback, trade tariffs also weaken other major currencies. The weakening happened because tariffs disrupt global trade flows, diminish economic growth prospects in affected regions, and potentially trigger retaliatory measures, further exacerbating currency volatility and undermining confidence in those economies.
According to Reuters, the US is the second-largest market for E.U. steel exports. Higher tariffs will certainly slow the eurozone's economic growth, potentially prompting the European Central Bank (ECB) to cut interest rates further. Christine Lagarde, ECB President, warned yesterday that tensions in world trade could affect the outlook for inflation in the eurozone, which will most probably return towards 2% this year.
EUR/USD was relatively unchanged during the Asian and early European trading sessions, trading just below the daily pivot level of 1.03080. Today, traders should monitor Fed Chair Jerome Powell's speech in his two-day testimony before Congress at 3:00 p.m. UTC. If he confirms that inflation remains an issue and sounds hawkish, the EUR/USD pair may weaken further. Conversely, the pair may rebound towards 1.03300 on a more dovish stance.
Trump's Tariffs Cast a Shadow Over the Japanese Yen
The Japanese yen ( USD/JPY ) lost 0.39% against the US dollar (USD) on Monday as investors feared Japan would face higher US imports.
"There is a little bit of catch-up and also this idea that maybe Japan was going to escape the worst of it and now could be hit with the steel and aluminium tariffs," said Marc Chandler, chief market strategist at Bannockburn Global Forex.
On Sunday, Japanese Prime Minister Shigeru Ishiba expressed optimism that his country could avoid higher US tariffs. He said that Donald Trump had 'recognised' Japan's huge investment in the US and the American jobs it creates. USD/JPY has been in a downtrend since mid-January as the Bank of Japan (BOJ) embarked on a tightening campaign and raised its short-term interest rates towards a multi-year high. However, the threat of new tariffs may potentially reverse the trend.
USD/JPY was relatively unchanged during the Asian and early European trading sessions, moving below the 200-day moving average of 152.750. Today, traders should watch Fed Chair Jerome Powell's speech as he begins his two-day testimony before Congress at 3:00 p.m. UTC. If he confirms that inflation remains an issue and sounds hawkish, USD/JPY's rebound may extend towards 152.800. Conversely, USD/JPY may fall below 151.000 on more dovish statements.
"I think Powell is going to tell Congress the same thing basically he told everybody else, with the economy still in a good place, and that is above-trend growth, that the Fed has time. The Fed can be patient while the restrictive monetary policy helps bring inflation back down to target over time", said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.