On Thursday, gold prices jumped almost 2%. This spike only reflected a short-term flicker of investor optimism as the promise of better US – China relations emerged from trade talks. All that optimism took a major blow on Friday. The gold market fell on the last trading day of the week as investors returned with a risk-on attitude. The US Dollar (USD) strengthened against all of its peers. It gradually increased as investors reacted to shifts in global trade policy.
On Thursday, US President Donald Trump confirmed that officials from the United States and China met earlier in the day, marking a significant moment in the ongoing economic dialogue between the two countries. The meeting rekindled hopes of easing tensions that have persisted since the onset of the US-China economic conflict in early 2018. It’s true that Trump raised the first trade barriers to combat what he described as malign commercial practices and unique IP theft. These measures have only evolved into a more intricate maze of tariffs and trade talks.
Market Reactions to Trade Developments
As the markets opened on Friday, the US Dollar Index climbed toward 100.00, signaling a solid performance against major currencies. The USD demonstrated powerful bullish momentum against more or less every pair. Most notably, the US dollar added more than 0.6% against the Japanese Yen (JPY), changing hands just shy of the 143.50 level, its highest peak in ten days. In part, the USD rose because of renewed hope on the outcome of Chinese trade negotiations. At the same time, market sentiment is moving to risk away from safe-haven assets like gold.
Meanwhile, gold (XAU/USD) had a rough day as investors moved to riskier assets. Gold prices fell after rallying earlier in the week. This drop is the most recent indication of a major thaw in risk appetite among investors, many of whom are developing a strong appetite for riskier assets. This transition points to a nuanced relationship between gold and other asset classes, especially during periods of increasing and then decreasing geopolitical risk.
The EUR/USD forex pair found it hard to hold on to its gains on Friday, moving back to the downside in the 1.1350 area. The pound US dollar currency pair fell more than 0.2%, closing near the 1.3300 level. This fall demonstrates the effect of Brexit uncertainties and other home front concerns weighing down the British pound. The AUD/USD held the line, as long as 0.6400. Market participants are closely watching how US-China talks will affect the global trade landscape.
Implications of China’s Tariff Suspension
In fact, China is reportedly weighing whether to suspend its exorbitant 125% tariff on some US goods. This recent move introduces several new variables to the economic equation. These talks include exemptions for essentials such as medical devices and ethane. These exemptions will go a long way towards avoiding trade disputes between the two countries. China has expressed interest in waiving tariffs on leases of aircraft. Trade businesses can infuse the collective impact of this move into manifested willingness to tackle long-standing barriers that have long-ballasted trade.
These advances are especially noteworthy. They follow after the US-China Phase One trade deal, signed in January 2020, intended to ease tensions and increase trade monetary circulation between the two nations. Yet the long-term effects of tariffs enacted during President Trump’s administration are still taking heavy tolls on U.S. bilateral relations. Analysts are watching these joint statement discussions very closely, as they have the potential to reshape battles over trade and the changing economic order ahead.
The effects of these ongoing tariff negotiations are not just found on the ground, but in market reaction. Investors are recalibrating their strategies based on perceived risks associated with ongoing trade talks. If China reduces its high tariffs, such a move would likely increase confidence in both economies. For one, this move is likely to improve investor sentiment in multiple asset classes.
Economic Indicators and Their Impact
Alongside trade news, high-frequency economic indicators have become vital contributors to the prevailing market narrative. And the UK’s Office for National Statistics has just come in with a boost of 0.4% month-on-month for March retail sales. This increase points to a likely consumer spending bounce, which should come through strengthening the currency going forward.
Such economic data is music to markets’ ears and has the potential to boost investor sentiment greatly. A stronger-than-expected retail sales report would be taken as a sign of economic resilience, likely boosting the British Pound in opposition to its peers. With continued uncertainty over international trade ties and a new domestic economic policy, volatility is likely.