Dollar came back fighting, rate differential the main reason why dollar was picked up. With Fed raising rates and other central banks still shying away from raising rates markets were selling lesser yield currencies to pick up higher yielding dollar. Gold tested its resistance at 1350 again and failed at it yet again. Trade wars and geopolitical tensions didn’t flare up as expected and gold bulls were unable to keep up their pressure. Gold hit a low of 1321 before closing at 1325.
Last week saw Trump ramping up tensions on trade and geopolitics. He imposed tariffs on $60bn worth of Chinese imports with Chinese threatening to reciprocate by imposing tariffs on imports from the US, mainly pork and Soybeans. Trump also removed his National Security Advisor (NSA) and appointed Bolt has his new NSA. Bolt is a noted policy hawk which might put the Iranian nuclear deal under jeopardy. Trump since coming to power has been critical of the Iranian deal, and with his friends in Israel and Saudi against the deal, his criticism has only grown. Now that he has filled up chairs around him of neocon hawks, it’s just a matter of time before the US walks away from the Iranian deal.
Tariffs and another firing by Trump drove headlines last week. Trump wasn’t willing to let go his trade war rhetoric one bit as he mentioned trade surplus with Canada and was also rumored to be weighing out imposing tariffs on certain goods imported from China. Trump has earlier fired his secretary of state Rex Tillerson and now has replaced him by former CIA director Mike Pompeo, a renowned Iran hawk. The vacant CIA director’s post was filled in by Gina Haspel who will be agencies first female head.
Last week was hectic. President Trump raised the threat of trade war yet again this time threatening China and India with reciprocative taxes a week after imposing the same on steel imports. He though reprieved Mexico and Canada until NAFTA talks are concluded. On the other hand reports emerged of North Korea expressing willingness to talk and Trump and NK leadership is set to meet in May.
Last week Fed’s Powell in his maiden testifying session send markets into a spin as he rather surprisingly sounded rather hawkish raising hopes of more than the currently expected 3 rate hikes next year. He sounded optimistic about inflation too expecting it to reach the targeted 2% soon. Markets that were expecting a continuance to the cautious approach championed by Yellen was shaken by a rather hawkish sounding Powell.
FOMC minutes released on Wednesday gave Dollar the much required support as minutes were interpreted to be hawkish. Gold that had another go at $1351 failed again to close down at $1328 after finding support at $1319, where the rising trend line sits. EURUSD too was weak after failing to settle above 1.2500. Multiple failure above 1.2500 has now bought sellers in control as EURUSD lost more than 130 pips last week to end at 1.2284. Economic data’s from Europe was mixed failing to prop up EUR.
Gold had another go at the resistance at $1351/oz., briefly breaking it but failed to gain any further closing lower at $1349/oz. US data from last week was supportive of gold as stagflation worries returned with US inflation was seen higher, while retail sales were lower. EURUSD was driven by US dollar movement as Europe had no major data releases last week. Weakening US dollar helped EURUSD hit a high of 1.2550 before Friday’s profit booking bought it down to end the week at 1.2410.
US equity sell off accelerated last week with it recording a sharp 10% decline spread across 2 weeks. The selloff was accelerated by worries about tightening by central banks worldwide that would bring to an end the availability of easy money. Gold sold off this week after it failed to breach $1351/oz. barrier which was a major disappointment for the bulls and a resultant sell off saw Gold touching $1309/OZ. after which bargain hunters moved Gold back up to close the week at $1317/oz.
Last week ended with the dollar moving higher on Friday following the US jobs data indicating that hiring activity and wage growth were bullish in January, paving the way for swifter rate increase by the Fed this year. The U.S. dollar index climbed up 0.63% to 89.04 in subsequent trade.