Safe-Haven Demand for Gold Remains Strong
The gold ( XAU/USD ) price surged by 3.58% on Wednesday. Investors continued to buy safe-haven assets due to the intensifying trade conflict between the US and its trading partners, particularly China.
Gold, which is traditionally seen as a hedge against political and economic uncertainty and inflation, has risen by more than 27% this year. Over the past two and a half years, XAU/USD has doubled its value from $1,620 in November 2022 to around $3,300 today. The recent surge in gold is driven by an ongoing trade war between the US and China, with no resolution in sight. Most recently, China ordered airlines not to take further deliveries of Boeing (NYSE: BA ) aircraft, while the US government limited Nvidia (NASDAQ: NVDA )’s H20 artificial intelligence chip exports to China.
Meanwhile, Jerome Powell, US Federal Reserve (Fed) Chair, said the Fed would proceed with interest rate decisions only after analysing economic data. He also raised concerns about the effects of Trump’s tariff policies on inflation and employment, which could deviate from the Fed’s targets. Despite the increased likelihood of accelerating inflation and higher interest rates, the market paradoxically anticipates a dovish stance from the Fed. The latest interest rate swaps market data currently implies more than a 30% chance of 100 basis points (bps) worth of rate cuts by the end of the year. As a result, the US Dollar Index (DXY) continues to move near multi-year lows, making gold more attractive for foreign buyers. However, if investors’ dovish expectations moderate in response to higher inflation, XAU/USD may correct downwards. Still, technical indicators remain bullish, so investors will likely buy any dips in gold.
"The rally has become a bit unhinged, leaving it at risk of corrections. However, we have for more than a year now seen corrections to be shallow, with underlying bids waiting on any setbacks", said Ole Hansen, head of commodity strategy at Saxo Bank.
XAU/USD remained relatively flat during the Asian and early European trading sessions. Today, the European Central Bank (ECB) rate decision at 12:15 p.m. UTC might trigger some volatility. Additionally, US Jobless Claims at 12:30 p.m. UTC will shed light on the state of the US labour market, potentially altering Fed monetary policy expectations. Moreover, traders should monitor any tariff-related news and developments around trade negotiations. Key levels to watch are resistance at $3,381 and support at $3,305.
Euro Awaits ECB Decision and Press Conference
The euro ( EUR/USD ) gained 1.04% against the US dollar (USD) on Wednesday as the greenback continued falling due to ongoing trade conflict between the US and China.
The US dollar has been depreciating lately due to worries about the economic consequences of trade tariffs. Investors also fled from US assets amid uncertainty surrounding the unpredictable application of trade duties. As a result, other major currencies—safe-haven like the Swiss franc and risk-sensitive like the Australian dollar—appreciated. EUR/USD also moved higher due to the US dollar’s weakness, not because of the underlying strength of the eurozone economy.
"We’re in a little bit of an information vacuum now with this stalemate between China and the US, and we’re waiting to see what deals get struck with other countries", said Brad Bechtel, global head of FX at Jefferies in New York.
According to Reuters, the US is already trying to reach new trade deals with countries. Vice President JD Vance said there was a good chance that the US and U.K. would strike a ’great agreement’ on trade, but any agreements with China and the E.U. are expected to take longer.
EUR/USD fell slightly during the Asian and early European trading sessions. Today, the European Central Bank ( ECB ) will announce its interest rate decision at 12:15 p.m. UTC and issue its latest Monetary Policy Statement (MPS). MPS is a critical update outlining the bank’s economic outlook and policy stance. ECB President Christine Lagarde will address the media at a press conference at 12:45 p.m. UTC. These events will likely trigger significant market volatility, particularly in EUR and related currency pairs. Market participants anticipate the ECB will lower its refinancing rate by 25 basis points (bps) towards 2.4% and reduce the deposit facility rate by 25 bps towards 2.25%.
The rate decision is important, but the market usually reacts more strongly to unexpected details in the MPS or signals from the ECB president’s remarks during the Q&A session. The MPS may provide updated economic and inflation projections or hints about the ECB’s monetary policy path. At the same time, Lagarde’s tone and responses could clarify the bank’s stance on challenges like slow growth and trade tariffs. If the ECB downgrades its economic forecast while Lagarde hints at additional rate cuts, EUR/USD will likely fall sharply. Conversely, if MPS presents a more optimistic economic assessment, and Lagarde adopts a hawkish tone or delivers less dovish remarks than anticipated, EUR/USD will almost certainly rise. However, the rise could be limited as the pair is already trading new multi-year highs.
Japanese Yen Rises as Investors Flee From US Dollar
The Japanese yen ( USD/JPY ) gained 0.99% against the US dollar (USD) on Wednesday as investors continued to buy safe-haven currencies, fearing that rising tariffs would hurt the US economy and the greenback.
Amidst market turbulence and recessionary anxieties sparked by global trade tariffs, US President Donald Trump reported ’big progress’ in face-to-face tariff talks with Japan. He also said that getting a deal with Japan was a US ’top priority’. According to Reuters, the JPY exchange rate, which the Trump administration has said Japan manipulates to get a trade advantage, wasn’t part of the negotiation.
"It sounds like the Trump administration really does want a quick deal, which suggests it will be a less substantive deal", said Tobias Harris, founder and principal of Japan Foresight.
Previously, Trump imposed 24% levies on Japan’s exports to the US, although these tariffs have been paused for 90 days. Still, a 10% universal rate and a 25% duty for cars remain in place, which are a mainstay of Japan’s export-reliant economy. Traders should continue closely monitoring the ongoing trade negotiations, as the result may significantly impact USD/JPY.
USD/JPY rose during the Asian and early European trading sessions. Today, apart from tariff-related news, traders should focus on the US Jobless Claims report at 12:30 p.m. UTC. It may shed light on the state of the US labour market, potentially altering investors’ rate-cut expectations and triggering volatility in all USD pairs. Key levels to watch are resistance at 143.200 and support at 142.300.