The financial markets experienced significant volatility during trading on Tuesday, one day after Donald Trump was inaugurated as the 47th President of the United States. Immediately upon taking office, Trump signed numerous executive orders, but he has yet to finalize the increase in import tariffs.
Trump announced plans to increase import tariffs by 25% on goods from Canada and Mexico, along with an additional 10% on products imported from China starting February 1. This announcement has triggered heightened volatility in the financial markets, which is expected to continue through trading on Wednesday (January 22, 2024).
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GOLD
The price of gold (XAUUSD) has rallied significantly due to Trump’s proposed tariff hikes, which could potentially ignite a second trade war. Should this occur, the negative impact on the global economy would likely drive up demand for gold as a safe haven asset.
On Tuesday, the price of gold surged by $38.25, or 382.5 pips, reaching $2,744.59 per troy ounce. This daily increase marks the largest in the past two months. By midday, gold continued its ascent, climbing to $2,752.84 per troy ounce, getting closer to its all-time record high of $2,790 per troy ounce achieved on October 31.
The sentiment surrounding the potential import tariff increases will likely continue to influence gold prices during the European trading session.
OIL
The price of oil (CLS10) has dropped for four consecutive days, closing on Tuesday at $75.86 per barrel. Over the last four trading days, oil has plummeted by $4.62.
This decline is attributed to Trump’s plan to boost domestic oil production, which could lead to increased supply and contribute to negative sentiment around oil prices, likely continuing in the European session.
EURUSD
This currency pair experienced a significant dip of nearly 750 points (75 pips) on Tuesday before reversing course and closing trading at 1.04240. Compared to the closing price on Monday, EURUSD rose slightly by 7.5 pips.
The EURUSD pair remains vulnerable to further pressure due to the potential for inflation in the U.S. to accelerate if the proposed import tariffs are implemented. This could lead the Federal Reserve to be more cautious in lowering interest rates. Conversely, the European Central Bank (ECB) is anticipated to lower interest rates by the end of this month.
GBPUSD
GBPUSD exhibited extreme volatility during Tuesday’s trading, plummeting nearly 100 pips before recovering 28 pips to close at 1.23559. The reported increase in unemployment in the UK, coupled with a rise in average wages, has contributed to the volatility of GBPUSD, alongside the new era of U.S. politics under President Trump.
Market participants are currently weighing whether the Bank of England (BoE) will cut interest rates in early February following mixed labor data from the UK. On the other hand, it is almost certain that the Fed will maintain interest rates during its monetary policy announcement at the end of this month, suggesting further pressure may apply to GBPUSD.
USDJPY
USDJPY has been volatile, trading within a wide range before recording a slight decline to 155.476. The yen is holding strong as the Bank of Japan (BoJ) is expected to raise interest rates this week.
This situation is likely to keep USDJPY in a volatile range during the European trading session, with market participants awaiting clarity from the BoJ, which could create positive sentiment for USDJPY.
Nasdaq
The Nasdaq composite index briefly fell by 300 index points before rebounding by 92 index points to 21,772 during Tuesday’s trading. The absence of Trump’s signature on the executive order for tariff hikes has allowed the Nasdaq to rebound.
Before any orders are signed, there is hope that tariff increases will not be implemented aggressively, as bilateral negotiations might occur to avert a trade war. This sentiment is expected to continue impacting the Nasdaq’s movements in the European trading session.
