Thursday proved to be a pivotal day for markets, as traders grappled with lingering tariff anxieties, despite President Trump’s 90-day reprieve for non-retaliatory nations. Optimism faded quickly amid disappointing US inflation data and mounting fears that tariffs could dampen the US economic growth. Market nerves were further frayed by speculation that Trump may be moving closer to ousting Federal Reserve officials, with Chair Jerome Powell reportedly at the top of his list. Heightened geopolitical tensions in the Middle East and growing unease over a potential US-China trade war added to the risk-off sentiment, leaving investors on edge.
Despite the risk-off mood, the US Dollar Index (DXY) slumped, allowing significant currencies to post daily gains. Meanwhile, traditional safe-haven assets like the Swiss Franc (CHF), Japanese Yen (JPY), and Gold surged as investors sought shelter. In contrast, crude oil, equities, and cryptocurrencies faced declines.
The DXY’s drop to its lowest since July 2023, along with optimism around an EU-US trade deal, lifted EURUSD to a 26-month high. The pair gained as both sides paused reciprocal tariffs and reopened trade talks. However, concerns that a US-China trade war could spill over into Europe—if China redirects exports—combined with the ECB’s dovish stance, test the Euro bulls.
On the same line, GBPUSD extended its rally on hopes of a UK-US trade deal, bolstered by comments from Trump adviser Peter Navarro, as well as the softer US Dollar. Yet, cautious remarks from BoE’s Sarah Breeden, who noted significant risks to the UK’s economic outlook, join mixed UK data dump to cap the British Pound’s (GBP) gains at weekly highs.
Meanwhile, USDJPY suffered its biggest daily drop since January 2023, pressured by broad USD weakness and rising demand for safe-haven assets. The pair also reacted to Japan’s potential tax cuts, possible currency intervention, and a hawkish BoJ stance.
The US Dollar’s weakness supported the Aussie, Kiwi, and Loonie on Thursday. However, growing US-China trade war fears and concerns over global growth limited upside for AUDUSD and NZDUSD, while testing USDCAD bears afterward. Early Friday, these pairs faced fresh headwinds amid crude oil’s struggle and dovish concerns about the RBA, RBNZ, and BoC.
Gold extends its four-day winning streak, reversing early-week losses to notch a new record near $3,220. The surge is driven by a weaker US Dollar, heightened safe-haven demand, increased Chinese buying, and expectations of further stimulus from Beijing to boost consumption. Adding to the momentum are dovish signals from the Federal Reserve and other major central banks, along with concerns over tightening global gold supply.
Crude oil reversed its mid-week rebound from multi-year lows, while Bitcoin (BTCUSD) and Ethereum (ETHUSD) also closed lower, despite a weaker US Dollar, as risk aversion and supply-demand concerns weighed on sentiment. However, early Friday saw mild recoveries in crypto and a pause in oil selling, supported by market consolidation and Trump signing the US crypto regulatory bill into law.
Friday’s calendar features the UK’s NIESR GDP Estimate, US PPI, the University of Michigan Consumer Sentiment Index, and Inflation Expectations, alongside speeches from ECB, Fed, and BoE officials. However, the spotlight will remain on tariff developments and shifting market sentiment amid concerns over the global impact of the trade war and speculation about Trump’s influence on the Fed. If US data disappoints and trade tensions persist, the US Dollar may weaken further, boosting Gold, JPY, CHF, and other major currencies. In contrast, crude oil, cryptocurrencies, and equities could come under pressure, while bond yields are likely to edge higher.
May the trading luck be with you!
