Financial markets encountered significant turbulence at the beginning of trading on Monday (February 3, 2024) in response to the policies enacted by President of the United States, Donald Trump, on Saturday, February 1. Trump fulfilled his promise by increasing import tariffs on goods from Canada, Mexico, and China.
As a result, the Nasdaq index plummeted by over 600 points, landing at 20,950. Meanwhile, the US dollar index surged, indicating a decline in EURUSD and GBPUSD exchange rates.
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The EURUSD was observed dropping by 1,250 points (125 pips) to 1.02344, while GBPUSD fell by 108 pips to 1.22626. This rise of the US dollar index caused the price of Gold, which previously peaked at $2,803.55 per troy ounce, to reverse course and decline to $2,783.94 per troy ounce. However, Gold began to climb again shortly thereafter.
The erratic movement of Gold came after it shattered its all-time high record on Friday, reaching $2,817.04 per troy ounce. Given its elevated position and the soaring US dollar index, Gold experienced profit-taking actions. Nevertheless, the prospect of a second trade war is expected to foster a positive sentiment for Gold.
On Saturday, Trump signed an executive order to raise import tariffs from Canada and Mexico by 25% and from China by 10%, effective February 4. Shortly after, Canadian Prime Minister Justin Trudeau retaliated by imposing a 25% import tariff on American goods. Mexico and China are also predicted to respond similarly.
Interestingly, according to a source from the White House cited by Bloomberg, the executive order includes a provision allowing for tariff increases if retaliatory measures are taken by the impacted nations.
Thus, the threat of a broader second trade war looms on the horizon. In light of these developments, the Nasdaq may face significant pressure, while safe-haven assets like Gold and the US dollar are likely to see increased demand.
