Gold Declines After India Strikes Pakistan
Gold (XAU/USD) rose by 2.92% on Tuesday, continuing Monday’s rise.
The rise comes ’on demand from China, the world’s biggest bullion buyer. While the US dollar (USD) trades softer to support. Monday’s near 3% surge continues to underpin gold’s status as a safe-haven, Saxo Bank analysts noted. However, after India’s attack on Pakistan, the rise changed with a decline overnight.
“Historically, during 1965, 1971, and the Kargil War, we saw that gold prices didn’t move much. Gold is more driven by developments in the Middle East and U.S. and China-related activities. This event (Operation Sindoor) is largely neutral for gold”, said Tarun Satsangi, Associate Director-Research at Univest. The global factors will continue to have a higher impact on gold prices. “Slowing world economy and trade war between China and the U.S. are driving the gold prices globally”, he added.
XAU/USD fell by 1.38% during the Asian and early European trading sessions. Today, traders should expect heightened volatility due to the Federal Reserve (Fed) Interest Rate Decision at 6:00 p.m. UTC and the following press conference at 6:30 p.m. UTC. These events could spark additional movement in XAU/USD, especially if there are hints of further monetary easing. Key levels to watch are resistance at $3,450 and support at $3,200.
Mertz’s Election at the Second Attempt Supported the Euro
On Tuesday, the euro (EUR/USD) rose broadly by 0.47% after Germany’s parliament elected conservative leader Friedrich Merz a Chancellor. In turn, the US dollar was pressured by fears that the trade deals with the U.S. wouldn’t be realised.
“The market is getting nervous that we’re starting to eat away at the schedule since the 90-day tariff reprieve without anything meaningful being announced’, said Eugene Epstein, head of structuring for North America at Moneycorp. ’There’s a lot of good sentiment, but because of a distinct lack of formal substance that I’ve seen, I think the market is starting to get uneasy again”.
Today’s key event is the Federal Reserve’s (Fed) Interest Rate Decision at 6:00 p.m. UTC. Together with the decision will come out the so-called ’dot plot’—an interest rate forecast by FOMC members published four times a year. The market will likely consider a 25-basis-point (bps) rate cut bearish for EUR/USD, but this reduction has been priced in well in advance. If the Fed delivers a hawkish 50-bps rate cut while downplaying the likelihood of future reductions, EUR/USD may move sideways. A large 50-bps cut and dovish FOMC projections will almost certainly pull EUR/USD above the 1.16000 level.
Japanese Yen declines for the third consecutive session
USD/JPY fell by 0.9% on Wednesday, continuing the decline from Friday’s high of 145.922.
Traders closely monitored developments in U.S.-Japan trade talks as Tokyo aimed to finalise a bilateral agreement by June. On the economic side, Japan’s Services Purchasing Managers’ Index (PMI) data for April was revised upward, showing the strongest rise in new orders in nearly a year.
Also, the Bank of Japan (BoJ) held its benchmark interest rate at 0.5% last week and revised its growth and inflation forecasts downwards. This signalled a dovish regulator’s stance and suggested that additional rate hikes are unlikely in the near future. Despite this, markets continue to expect potential tightening later this year if economic data remains strong. Meanwhile, ongoing uncertainty around the Federal Reserve’s next steps continues to support the case for the Japanese yen (JPY) strengthening in the broader macro environment.
USD/JPY rose by 0.44% during the Asian and early European trading sessions. Today, the Federal Reserve Interest Rate Decision will be released at 6:00 p.m. UTC, potentially triggering volatility in the market. Key levels to watch are resistance at 144.000 and support at 142.350.