U.S. Trade Uncertainty Drives Gold Prices Up, Weakens Dollar
Today, the dollar index (DXY00) is taking a hit due to doubt over America's trade policies, dropping by -0.40%. President Trump mentioned on Sunday that he has no imminent plans to confer with Chinese President Xi Jinping, although he did mention potential trade deals with some key trading partners as soon as this week. The greenback bounced back from its worst levels today as T-note yields climbed when the US Apr ISM services index jumped past expectations.
The unexpected rise of +0.8 to 51.6 in the US Apr ISM services index for April surprised everyone, stronger than predictions of a decline to 50.2. Interestingly, the Apr ISM services prices paid sub-index also soared +4.2 to a 2-1/4 year high of 65.1, surpassing expectations of 61.4.
Many investors are overlooking a $4.83 trillion market that's been swiftly expanding. Sign up for our midday website Brief newsletter, a must-read for thousands daily.
The markets are penciling in a mere 2% likelihood for a -25 bp rate cut after Wednesday's 2-day FOMC meeting.
The EUR/USD (^EURUSD) is up by +0.40% today, with the dollar's weakness benefiting the euro. Today's Eurozone economic newsshowed that the May Sentix investor confidence index ascended more than expected, strengthening the euro. The Eurozone May Sentix investor confidence index rose +11.4 to -8.1, surpassing expectations of -11.5.
The chances of a -25 bp rate cut by the ECB at the June 5 policy meeting are estimated at 95% according to swaps.
USD/JPY (^USDJPY) is down by -0.81% today, with the yen climbing due to increased safe-haven demand triggered by concerns that the US-China trade war will persist after President Trump said he has no plans to converse with Chinese President Xi Jinping. Higher T-note yields today are detrimental to the yen. Market movements in the yen may be amplified due to Japan being closed today for Children's Day holiday.
June gold (GCM25) is up +79.80 (+2.46%), and July silver (SIN25) is up +0.241 (+0.75%). Precious metals prices are witnessing an upward trend today. The weaker dollar is boosting metals prices, and the persisting US-China trade war and President Trump's lack of plans to speak with Xi Jinping are escalating safe-haven demand for precious metals. Middle East geopolitical risks, including the Israel-Hamas and US-Houthi conflicts, are further supporting safe-haven demand for precious metals.
Still, higher T-note yields are restricting precious metals prices from surging higher, and concerns about the US-China trade war's impact on global economic growth and industrial metals demand are adverse for silver prices.
On the publication date, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data provided in this article are solely for informational purposes.
Strategic Insights:
- US currency markets, gold prices, and commodity markets are affected by various factors such as trade policies, economic indicators, and geopolitical risks.
- The US-China trade war remains a significant concern, with President Trump's remarks regarding not speaking with Xi Jinping heightening uncertainty.
- The stronger dollar generally dampens gold prices, but geopolitical tensions and economic instability can drive up demand for the precious metal as a safe-haven asset.
- Central bank policies play a crucial role in shaping the USD/JPY exchange rate, with differences in monetary policies between the US Federal Reserve and the Bank of Japan having a significant impact.
- European economic performance and geopolitical developments within the EU impact the EUR/USD currency pair.
- Despite the recent increase in the US Apr ISM services index to 51.6, investors are still overlooking a significant market of $4.83 trillion that has been persistently expanding.
- On Wednesday, the markets are expecting a mere 2% likelihood for a -25 bp rate cut after the FOMC meeting, but the chances of a -25 bp rate cut by the ECB at the June 5 policy meeting are estimated at 95%.
- Jinping's lack of plans to converse with President Trump has led to concerns that the US-China trade war will persist, which is escalating safe-haven demand for precious metals such as June gold and July silver.
- While the stronger US dollar generally dampens gold prices, geopolitical tensions and economic instability can drive up demand for gold as a safe-haven asset, especially in the context of the US-China trade war.
