The financial markets are witnessing heightened activity following US President Donald Trump's decision to sign executive orders imposing 25% tariffs on steel and aluminum imports into the United States. With Mexico being the leading exporter to the US, accounting for $466.6 billion in exports according to the US Census Bureau, the tariffs have incited significant economic discussions. The introduction of these tariffs has propelled an increase in US Treasury bond yields, thereby limiting substantial losses for the US Dollar (USD). Investors are now adjusting their expectations regarding the Federal Reserve's monetary policy, predicting only one rate cut by year’s end.
The yield on the benchmark 10-year US government bond experienced its largest one-day surge since December, a clear reflection of the market's response to the newly imposed tariffs. Federal Reserve Chair Jerome Powell emphasized the ongoing battle against rising prices, asserting that additional interest rate cuts will be postponed until inflation aligns with the 2% target. Amidst these developments, gold, renowned for its safe-haven status, has seen a notable increase in demand driven by fears of a potential global trade war.
The daily Relative Strength Index (RSI) for gold remains in the overbought territory, prompting caution among investors. Concurrently, a slight downturn in the US Dollar (USD) further supports the growing demand for gold. While initial market reactions to recent US consumer inflation figures were short-lived, concerns over Trump's trade tariffs continue to dominate discussions. Central banks, in an effort to diversify their reserves and bolster economic and currency strength, are increasingly turning to gold as a strategic investment.
The US Dollar (USD) has struggled to attract buyers, remaining near the lower end of its weekly range. Meanwhile, gold prices have drawn buyers for two consecutive days, benefiting from a combination of favorable factors. Central banks, as major gold holders, have played a substantial role in supporting gold prices through their increased demand.
Looking ahead, market participants are eagerly anticipating the release of the US Producer Price Index and Weekly Initial Jobless Claims on Thursday. These economic indicators may provide further insights into the USD’s trajectory and could potentially impact the XAU/USD pair.