Gold Demand Rises Amid Uncertainty
The gold (XAU/USD) price fell by 0.79% on Tuesday as the US dollar (USD) strengthened.
US consumer confidence in April plummeted to its lowest level since May 2020, with the Conference Board’s index decreasing by 7.9 points towards 86. The decline reflects growing public concern over escalating trade tensions and inflationary pressures. Short-term expectations for the index fell sharply towards 54.4, well below the recession-warning threshold of 80. The drop indicates concerns about slowing hiring, rising prices, and volatile financial markets. Notably, inflation expectations have surged towards 7%, the highest level since 2022, underscoring fears that tariffs and supply chain disruptions could further erode purchasing. Amid the economic uncertainty, demand for gold increased.
"Central banks may opt to ease their monetary policies further and also chart a course for potentially moving away from reliance on a dominant currency holding. Such a shift could create a more favourable environment for gold", said Chirag Mehta, chief investment officer at Quantum Mutual Fund.
XAU/USD fell during the Asian and early European trading sessions. Today, traders should focus on the US and eurozone’s Gross Domestic Product (GDP) Growth Rate reports. They may shed more light on the path of interest rates in the US and the eurozone. Key levels to watch are support at $3,265 and resistance at $3,350.
Euro Slightly Declines Due to US Dollar’s Increase
The euro (EUR/USD) lost 0.28% against the US dollar (USD) on Tuesday. With uncertainty about US inflation, markets aren’t getting clear signals about the US and eurozone central banks’ policy on interest rate cuts.
"We expect the Federal Reserve (Fed) to delay its response to weaker economic activity, in order to avoid a further rise in inflation only when weaker activity starts to feed through to the labour market, will the Fed begin to cut rates, but do so aggressively", said David Kohl, chief economist at Julius Baer. "We now expect two rate cuts by 50 basis points at both the July and September Federal Open Market Committee meetings".
To mitigate the economic impact of newly imposed auto tariffs, US President Donald Trump signed executive orders introducing a package of credits and targeted relief from other material-related levies. The administration’s trade team announced its first agreement with a foreign partner, signalling progress in trade negotiations. US Treasury Secretary Scott Bessent added that deals with India and South Korea are in advanced stages. While it may offer temporary relief to markets, underlying fears persist that tariffs could dampen economic growth, increase inflation, and raise unemployment.
EUR/USD fell slightly during the Asian and early European trading sessions. Today, traders should focus on the Gross Domestic Product (GDP) Growth Rate reports. German, eurozone, and US data will come out at 8:00 a.m., 9:00 a.m., and 12:30 p.m. UTC, respectively. Lower-than-expected figures could push EUR/USD below 1.13000. Conversely, higher-than-expected results may push EUR/USD higher towards 1.14300.
Australian Dollar Edges Higher on Inflation Data
The Australian dollar (AUD/USD) lost 0.76% against the US dollar (USD) on Tuesday. Today, AUD/USD rose slightly towards 0.64000, recovering some losses. The pair increased after the Australian inflation figures came out. Headline inflation in Australia rose by 2.4% year-over-year in Q1, maintaining the pace seen in the prior quarter and marginally surpassing consensus forecasts of 2.3%. However, the trimmed mean measure of core inflation eased towards 2.9% from 3.3%. This reinforced market expectations that the Reserve Bank of Australia (RBA) may implement a rate cut in the near term.
"The economy is facing a significant external demand shock from Q2 onwards", said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. "With underlying inflation within the RBA’s target range, the bank has greater scope to help support the economy through this coming shock", he added. "We expect a 25 basis point cut in May, to be followed by two more cuts in the second half of the year".
AUD/USD rose slightly during Asian and early European trading sessions. Today, several releases could trigger volatility in all USD pairs and affect AUD/USD in particular. Key events are the US Personal Consumption Expenditures (PCE) Price Index and the Personal Income reports, both at 2:00 p.m. UTC. Stronger-than-expected figures may put downward pressure on the pair, while weaker reports might encourage AUD/USD bulls. Comments from Federal Reserve officials on monetary policy or the economic outlook can also add volatility to the market.