Forex Market Insight
Gold price slides as Powell warns on tariff-driven inflation
Gold (XAU) continued its decline on Friday, dropping to a seven-day low of $3,015 before recovering slightly. This decrease followed Federal Reserve Chair Jerome Powell’s saying that tariffs could reignite inflation. XAU/USD is currently trading at $3,029, down 2.70%.
Financial market turmoil continued amid the trade war escalation between the United States (US) and China. Powell poured cold water on Fed easing bets, commenting that tariffs will likely impact the US economy, including slower growth and higher inflation. An article in the Financial Times (FT) revealed that hedge funds were hit by the most significant margin calls since COVID-19 following Trump’s Liberation Day.
Suki Cooper, an analyst at Standard Chartered, noted that Gold often sells off after risk events since it is a liquid asset for meeting margin calls. Meanwhile, a strong US jobs report showed private companies added over 200K jobs in March. Although the unemployment rate ticked slightly, Bloomberg called it a “rounding error.”
XAU/USD technical outlook: Gold price tumbles below $3,050
Gold is puking at the time of writing as sellers continue to push prices lower, eyeing a challenge of the $3,000 mark. Despite being bullish, the Relative Strength Index (RSI) is about to cross below its neutral level, which could be the latest sign that Gold is poised for a pullback.
If Gold prints a daily close below $3,000, the next support would be the 50-day Simple Moving Average (SMA) at $2,937, followed by the $2,900 figure. On the other hand, if XAU/USD edges up, buyers need to reclaim $3,100 to regain control.
Donald Trump Starts A Trade War
President Donald Trump is intensifying his extensive global trade war, a strategy that will likely hit Americans’ wallets and could push the US economy into a severe recession.
On Wednesday, Trump announced a national economic emergency and revealed that tariffs of at least 10% would be imposed on all countries. White House officials noted that these rates could soar even higher for 60 nations identified as the “worst offenders.”
Among the highest new tariff rates, a staggering 49% will be placed on all imports from Cambodia, as showcased on a poster during Trump’s Rose Garden event. Other significant reciprocal tariffs include 46% for Vietnam, 34% for China, and 20% for the European Union.
Starting May 2, China’s reciprocal tariff will add to the existing 20% tariff imposed by Trump, bringing the total to an eye-popping 54%. Last year, the US imported $439 billion of goods from China, its second-largest import source after Mexico.
This 54% tariff will also apply to packages under $800 from China and Hong Kong, meaning Americans shopping on sites like AliExpress, Temu, and Shein will face significantly higher prices.
While goods like steel and aluminum won’t incur extra country-specific tariffs, in China’s case, these sector tariffs will stack on top of the existing 20%.
Trump claimed these rates are “half” of what other nations and trading blocs impose, factoring in currency manipulation and other barriers, though the specifics of these calculations are unclear.
Notably, Trump didn’t escalate tariffs further in Wednesday’s announcement. He had previously considered a baseline 20% tariff on all imports and suggested 25% tariffs on semiconductors and pharmaceuticals, effective April 2, in addition to reciprocal tariffs.
Trump says tariffs will grow the US economy. Not everyone is on the same page.
Trump has asserted that the tariffs “will give us growth,” often claiming they will make the US less dependent on income taxes for revenue. He even suggested that tariff revenue could fully replace income taxes. However, many economists note that the importing country ultimately pays the tariffs, often leading to higher consumer prices.
This approach risks further alienating the US from both adversaries and key allies. “It’s our declaration of economic independence,” Trump said Wednesday. “Jobs and factories will come roaring back into our country, and you can already see it happening.”
The universal 10% tariff rate will take effect on April 5, while customized rates will follow on April 9, suggesting that countries currently above 10% may have room to negotiate.
Nations with higher tariffs are viewed as having both “non-monetary barriers” and “monetary barriers” to trade. After Trump’s announcement, stock market futures dropped sharply, with the Dow down 0.61%, the S&P falling 1.69%, and the Nasdaq Composite plunging 2.54%.
Scott Lincicome and Colin Grabow from the Cato Institute warned, “With today’s announcement, US tariffs will approach levels not seen since the Smoot-Hawley Tariff Act of 1930, which triggered a global trade war and worsened the Great Depression.” They criticized Trump’s claims: “The only thing these tariffs will ‘liberate’ is money from Americans’ wallets.”
Trump also highlighted various non-tariff barriers, such as currency manipulation and unfair tax policies, referencing a report from the US Trade Representative.
David Beckworth, a former Treasury economist, labeled the tariffs “a perfect recipe for stagflation and a lost midterm election,” noting the troubling combination of rising consumer prices and supply chain disruptions.
Moreover, Olu Sonola from Fitch Ratings warned that many countries could fall into recession, emphasizing that most economic forecasts could be disregarded if these tariff rates remain for an extended period.
Only certain goods from Mexico and Canada could escape tariffs.
The new tariffs will exclude goods from Canada and Mexico that meet the United States-Canada-Mexico Agreement. This announcement marks a shift from the clarity businesses have desired since Trump’s November victory and may provoke retaliatory tariffs, escalating the trade war. Existing tariffs have strained the US economy during a fragile time, as consumers face significant financial challenges. This new round of tariffs is the largest in nearly 80 years, coinciding with the highest inflation in four decades and rising interest rates.
Countries prepare to hit the US back with tariffs.
Treasury Secretary Scott Bessent has advised countries to refrain from retaliating. “Everyone should take a step back and breathe,” he told CNN’s Kaitlan Collins after Wednesday’s ceremony. “Let’s see how things unfold; retaliation could escalate tensions.”
Nevertheless, many nations seemed to ignore his advice. While no one officially announced retaliatory measures immediately, several leaders indicated they were weighing their options. For instance, Norway’s Minister of Trade, Cecilie Myrseth, mentioned to NRK that they were “crunching the numbers.”
European Commission President Ursula von der Leyen stated that the EU had a “strong plan” to respond to US countries such as Canada, Mexico, China, Japan, and South Korea, which also formed their retaliation plans.
Chinese Foreign Minister Wang Yi warned that Beijing would take action if the US continued its “blackmail.” He noted, ” ‘America First’ shouldn’t mean American bullying.”
Mexican President Claudia Sheinbaum announced she would unveil a “comprehensive program” response to Trump’s tariffs. At the same time, Canadian Finance Minister François-Philippe Champagne promised a “strong response” to the new tariffs on US goods to be revealed later that day.
US Dollar Faces Volatility Amid Escalating Tariffs and Global Trade Tensions
As the US implements new tariffs on a range of imports, experts are examining how this will affect the dollar’s value. President Trump’s tariffs, particularly those targeting significant trading partners like China and the EU, are expected to increase the dollar’s value volatility. The dollar’s strength is closely tied to the health of the US economy and its trade relationships.
Impact on Import Prices and Inflation
Heightened tariffs, which act as a tax on incoming goods, can lead to increased import prices. Companies will likely pass these costs onto consumers, resulting in higher prices and potential inflation. This may prompt the Federal Reserve to adjust monetary policy to address rising inflation.
Global Perception and Investor Behavior
Moreover, the US’s aggressive stance may influence the global perception of economic stability. Investors may become cautious, seeking safer investments and potentially diversifying away from the dollar to mitigate risk. Such shifts could lead to fluctuations in currency demand, affecting exchange rates.
Crypto Market Overview:
Bitcoin may benefit from the ongoing trade war as it moves away from stock market trends.
Bitcoin (BTC) soared above $84,000 on Friday, demonstrating resilience even as the stock market faced significant declines. This market reaction is tied to the clash between US President Donald Trump and Federal Reserve Chairman Jerome Powell over interest rate decisions.
Bitcoin shows resilience amid debate on interest rate cuts.
President Trump used his social media platform, Truth Social, to criticize Jerome Powell, the Federal Reserve Chair, due to new tariffs affecting international trade. He argued that now is a good time for the Federal Reserve to lower interest rates. Trump accused Powell of being “always late” and said this was a chance for him to improve his reputation. He urged Powell to “stop playing politics” with rate cuts.
Trump’s post was made just before Powell’s speech at a conference in Virginia. In his remarks, Powell said the Fed will keep monitoring economic data and risks before making any changes to policy. He mentioned that the central bank is in a good position to wait for more clarity on the economic outlook.
The Fed’s decision to wait on rate cuts led to declines in financial markets. US stocks saw increased losses, with the S&P 500 dropping 5.9% and the Nasdaq 100 falling 6%. Precious metals also fell, with Gold down 2.6% and silver dropping over 8%. However, Bitcoin and other cryptocurrencies remained steady despite the market chaos. Bitcoin briefly reached the $84,000 mark, while XRP and Solana increased by 3% and 5%, respectively.
Bitcoin haven narrative picks up pace after decoupling from stocks.
Despite a stock market crash, the crypto market’s resilience suggests that the link between cryptocurrencies and stocks may loosen. This shift also points to a growing preference for crypto assets, especially as the fallout from Trump’s tariffs could lead to a prolonged global trade war.
The crypto market’s reaction reinforces Bitcoin’s reputation as a haven during market volatility, potentially attracting investors if stocks and gold decline. A similar pattern occurred during the COVID-19 pandemic 2020, when Bitcoin dropped from around $7,161 to a low of $4,900 in March.
Yet, Bitcoin soon broke away from its ties to the stock market, quickly rebounding over the following months while stocks struggled under the pandemic’s pressure.
‘Shock’ Fed warning risks crashing Bitcoin, altcoin prices.
After Donald Trump announced his Liberation Day tariffs, Bitcoin and most altcoins outperformed stocks. Bitcoin traded between $80,000 and $90,000, while Ethereum lingered below $2,000. The total cryptocurrency market cap fell from $2.7 trillion to $2.6 trillion. In contrast, the stock market faced its worst week since 2020, with the Nasdaq 100, S&P 500, and Dow Jones entering correction territory.
Shock Fed warning on stagflation
Bitcoin and altcoins could struggle after Federal Reserve Chairman Jerome Powell warned that Trump’s tariffs would lead to increased inflation and slower economic growth in the U.S. Powell stated, “Our response is to keep long-term inflation expectations stable and ensure that a temporary price spike doesn’t turn into a lasting inflation problem.”
Conclusion:
Government trade decisions affect financial markets. Tariffs create uncertainty, while cryptocurrencies like Bitcoin may provide safe investment options, though they’re sensitive to economic changes. The rise of crypto services blurs the lines between digital and traditional finance, impacting future investment strategies.
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