Gold Continues Climbing Higher
The gold ( XAU/USD ) price rose by 1.96% on Friday as the US dollar (USD) continued to decline due to recession fears triggered by the escalating US-China trade war.
China increased its tariffs on US imports towards 125% on Friday, raising the stakes in a confrontation between the world’s two largest economies. The US Dollar Index (DXY) dropped below the critical 100.000 mark, setting a new three-year low and making bullion more attractive for overseas buyers.
"Gold is clearly seen as the favoured safe-haven asset in a world upended by Trump’s trade war. The US dollar has depreciated, and US Treasuries are selling off hard, as faith in the US as a reliable trading partner has diminished", said Nitesh Shah, commodities strategist at WisdomTree.
The ongoing rally in gold is driven by a combination of central bank demand, the anticipation of US rate cuts, geopolitical uncertainties, and a surge of inflows into gold-backed exchange-traded funds (ETFs). All these factors keep XAU/USD in a very strong bullish trend. According to Reuters, traders now bet the Federal Reserve (Fed) will resume easing its monetary policy in June and see around 90 basis points worth of cuts by the end of 2025.
"A minor correction (for gold) wouldn’t surprise, but the path forward is up and away as CPI and PPI give the Fed more room to cut and will keep downward pressure on the US dollar", said Tai Wong, an independent metals trader.
XAU/USD fell slightly during the Asian and early European trading sessions. Today, the calendar is relatively uneventful, but traders should continue to monitor any developments around global trade tariffs. If rhetoric eases and the world returns to more cooperative trade relations, XAU/USD will likely experience a sharp downward correction. Still, three Fed policymakers will give speeches later today, and their comments may spur some extra volatility in XAU/USD. Key levels to watch are resistance at $3,262 and support at $3,192.
Trade Tariffs Weaken US Dollar, Pushing Euro Higher
The euro ( EUR/USD ) gained 1.46% against the US Dollar (USD) on Friday. The greenback continued to weaken due to the deterioration of trade relations between the US and China and growing fears of a global recession.
China increased its tariffs on US imports from 84% towards 125% on Friday. The country retaliated against US President Donald Trump’s decision to hike duties on Chinese goods towards 145%. High import tariffs shook investors’ confidence in the greenback’s safety, sending it to its lowest level in a decade against the Swiss franc and a three-year low versus the euro.
"There’s a great rotation, which is basically foreign investors diversifying away from the US into other regions such as the eurozone. And for those foreign investors still involved in the US, they’re realising they need to currency hedge their assets. There’s a scramble to do so, which is putting additional pressure on the dollar", said Brad Bechtel, global head of FX at Jefferies.
Indeed, it appears the US dollar’s traditional safe-haven status is under threat as investors worry that higher tariffs could trigger a major US recession.
The recent US macroeconomic data also failed to boost confidence. Friday’s data showed that US consumer sentiment deteriorated sharply in April while 12-month inflation expectations surged to the highest level since 1981 amid unease over the trade tensions. As for the eurozone economy, its long-term prospects remain murky, but the euro continues to benefit as traders move away from the US dollar. Christine Lagarde, the European Central Bank ( ECB ) President, said on Friday that the central bank was ready to deploy its instruments to maintain financial stability. She added that the regulator had a solid track record in devising tools when required to deal with turbulence.
EUR/USD rose during the Asian and early European trading sessions. While today’s official macroeconomic calendar is light, traders should monitor any news regarding global trade tariffs. A potential easing of tariffs and a return to more cooperative international trade could trigger a significant downward correction in EUR/USD. In addition, three Fed policymakers will give speeches today, and their comments may spur extra volatility in all USD pairs. Key levels to watch are resistance at 1.14920 and support at 1.12366.
British Pound Strenghtens Due to US Dollar’s Weakness
The British pound ( GBP/USD ) rose by 0.87% against the US dollar (USD) on Friday as the greenback weakened amid worsening US-China trade tensions and rising global recession fears.
Like other major currencies, the recent rise in GBP’s value is primarily attributable to the US dollar’s weakness, not the pound’s strength.
"Part of the US dollar weakness in the past few weeks has been linked to worries over a recession or the Fed cutting rates, but it’s kind of gone beyond that. It’s more really a loss of confidence and credibility in the dollar and then in US policymaking. Typically, in risk-off episodes, the dollar should gain as a safe haven, but it’s really been the yen and Swiss franc that have been picking that up, and the dollar has been under pressure", said Win Thin, global head of markets strategy at Brown Brothers Harriman in New York.
Fundamentally, the U.K. economy may also suffer due to higher tariffs, but traders are ignoring this possibility for now. Megan Greene, Bank of England (BoE) policymaker, said that it was unclear what US President Donald Trump’s import tariffs would do to U.K. inflation, with the unpredictable behaviour of the US dollar adding to the puzzle. She noted the possibility of Chinese exports being diverted away from the US and towards Europe, which could push prices down.
"The key channel, really is exchange rates, and that’s been really difficult because exchange rates haven’t operated in the past week as the models would suggest. The dollar has fallen instead of appreciating as you would expect", Greene said.
GBP/USD rose during the Asian and early European trading sessions. Despite an uneventful day, traders should closely monitor any developments concerning global trade tariffs today. GBP/USD will likely sharply correct downwards if the US and China take a more balanced approach towards trade tariffs. Also, speeches from three Federal Reserve (Fed) officials later today may add volatility to all USD-related pairs. Key levels to watch are resistance at 1.31640 and support at 1.30622.