Market Reactions to Tariffs: Dollar Gains While Euro Slip and Precious Metals Soar
The dollar index (DXY00) climbed by +0.18% today, showing slight gains as President Trump announced plans to impose a 25% tariff on all steel and aluminum imports into the US. This news raised concerns that increased tariffs could lead to higher inflation and limit the Federal Reserve’s capacity to reduce interest rates. Additionally, the dollar received a boost from last Friday’s US payroll report, which indicated a drop in the January unemployment rate to an 8-month low and a stronger-than-expected rise in average hourly earnings, both of which are considered hawkish signals for Federal Reserve policy.
Currently, markets assign an 8% probability to a -25 bp rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on March 18-19.
Euro Under Pressure Amidst Tariff Announcements
The EUR/USD (^EURUSD) dipped by -0.11% as the euro faced slight losses following Trump’s tariff announcement, which may affect global trade and the Eurozone economy. However, losses were somewhat mitigated by the Eurozone’s February Sentix investor confidence index, which unexpectedly rose to a 7-month high.
ECB Vice President Guindos cautioned that US tariffs could trigger a “supply shock” with significant implications for global economic growth. Notably, the Eurozone’s February Sentix investor confidence index increased by +5.0 to a higher-than-expected level of -12.7, contrasting with the anticipated -16.5.
Swaps are currently pricing in a 100% likelihood of a -25 bp rate cut by the European Central Bank (ECB) during its policy meeting on March 6.
Yen Weakens Amid Economic Concerns
The USD/JPY (^USDJPY) rose by +0.15% today, placing pressure on the yen. A surprising decline in Japan’s January eco-watchers outlook survey to an 8-month low added to the yen’s challenges. Disruptions from the US tariffs further influenced the yen’s performance, although lower Treasury note yields provided some support. Additionally, the 10-year Japanese Government Bond yield reached a 13-year high today at 1.328%, enhancing the yen’s interest rate differentials.
Specifically, the January eco-watchers outlook survey dropped by -0.8 to an unexpected low of 48.0, falling short of the expected uptick to 49.0.
Precious Metals Rally Amid Safe-Haven Demand
In precious metals, April gold (GCJ25) increased by +46.00 (+1.59%) while March silver (SIH25) rose by +0.232 (+0.72%). This upturn in precious metals comes as safe-haven demand spiked following the tariff announcement. Gold reached a contract high, buoyed by expectations of rising demand, notably from China. China recently initiated a pilot program allowing insurance companies to allocate up to 1% of their assets in bullion, which could translate to approximately 200 billion yuan ($27.4 billion) in potential gold purchases.
Silver prices benefited from a simultaneous rise in copper prices, which reached a 4-month high, amid fears that it may become subjected to similar import tariffs from the US.
Despite these gains in precious metals, a stronger dollar is exerting bearish pressure on prices, and the rally in stocks is reducing the overall demand for safe-haven assets. Concerns remain over additional US tariffs potentially igniting a trade war that could harm the global economy and decrease industrial metal demand.
On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
here.
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