US Dollar plummets from three-week highs. This drop came just after President Donald Trump announced tariff exemptions on auto part imports. Throughout this period, this critical policy path influenced the USD/JPY pair leading it to face new supply in tandem with the US Dollar. Meanwhile, gold prices enjoyed a second wave of demand over $3,000 Thursday morning after weak action on Wednesday. The precious metal is seeking to challenge a record peak of $3,058. This latest push occurs as we approach the extremely important US Consumer Price Index (CPI) data scheduled for release Friday morning.
Tariff Exemptions and Currency Movements
President Trump’s decision to exempt all auto parts from tariffs has been instrumental in turning the tide over the currency market. The USD/JPY pair were showing some powerful bullish momentum. On Tuesday, it failed to maintain its recent daily close breakout above the 200-period Simple Moving Average on the 4-hour chart and fell slightly short of reaching the 151.00 level. The pair fell to retest the 150.00 handle during Thursday’s Asian session. This failure to capitalize on recent wins creates warning signs for investors.
The US Dollar's struggle to capitalize on its move to a three-week high during the Asian session reflects the market's cautious approach amid these developments. The Federal Reserve's recent revision of its growth outlook, which includes two anticipated 25-basis-point interest rate cuts by the end of the year, further complicates the Dollar's position. The Bank of Japan (BoJ) shifted hawkish. They are right to feel upbeat, as wage growth has proven durable and inflation measures are now moving toward the desired 2% longer-term average.
Gold Gains Momentum
Unlike the sometimes erratic fate of the US Dollar, gold has resurfaced as a sought after commodity among eager investors. After crossing the $3,000 threshold, demand for gold is unprecedented, showing that there’s never been a better time for this precious metal. It is currently aiming for its record high of $3,058. Gold prices have jumped on the safe-haven buying, as investors anxiously await Friday’s US inflation data. These figures have the potential to significantly sway the course of financial markets.
The Federal Reserve's announcement regarding future interest rate cuts has played a role in gold's recent demand surge. With investments currently facing uncertainty from Trump’s trade policies, gold is seen as the ultimate safe haven asset. Even with such a massive development, this trend highlights how difficult it is for the US Dollar to continue climbing significantly.
Global Economic Indicators and Market Reactions
Not all of the recent global economic news has been so dire. In a positive note, the US Commerce Department announced a 0.9% boost in Durable Goods Orders for February. This comes on the heels of a downwardly revised 3.3% gain in January. Further, the US Census Bureau called out Mexico as the number one exporter for the first time ever, with $466.6 billion in exports over this period.
The Bank of England still has three additional cuts priced in this year. This decision is in line with the global trend towards monetary easing. These changes are part of global central banks’ efforts to deal with changing economic conditions and uncertainty related to trade policy.
The Federal Reserve's forecast for future rate cuts marks a significant divergence from the BoJ's outlook. BoJ board member Junko Koeda expressed confidence on Wednesday that various indicators are pointing towards achieving a sustainable 2% inflation rate. This newfound belief is underpinned by Japan’s robust rate of wage growth, which came in solidly positive for the third year running.
"We've made a lot of progress bringing inflation down; still there is still more work to do." – Neel Kashkari