US-China trade truce
Ultimately, there is a 90-day pause on tariff-related matters between the US and China, which has introduced a degree of stability to the global financial market.
The reduction of tariff rates was notably more extensive than what the market had forecasted.
Recent economic data from around the world showed varying impacts from this situation across different countries.
In the US, consumer sentiment has sharply decreased, falling well below expectations, and optimism among small businesses has diminished, with a lack of enthusiasm in industrial production.
In an unexpected turn, the headline inflation figures for the US dropped to 2.3 percent from 2.4 percent, which was below what analysts had anticipated. However, the core inflation rate remained at 2.8 percent year-over-year, as expected.
Contrary to this, although the European Union responded to the US tariff actions, robust growth and better employment figures in Europe do not reflect the same downward trend, possibly indicating limited impact from the tariffs on its economy.
Meanwhile, Japan's economy contracted, causing a temporary drop in its currency, which later rebounded during the week.
The understanding reached between the US and China appears to have stemmed from China's retaliatory actions, contributing to the 90-day truce that has relieved the international business community. Nonetheless, uncertainties remain regarding future outcomes, as a permanent settlement has yet to be attained.
The ongoing US-China negotiations are a positive development that may alleviate US inflationary pressures, which are already trending downward and could support a Federal Reserve rate cut.
However, the risk lies in the potential for a failure to reach an agreement, as China is known to be a tough negotiator.
The US' assertive measures could reflect lessons learned from past experiences, particularly since Chinese imports from the US fell short of commitments in 2020 due to reduced purchases. If a resolution is not achieved within the three-month timeframe, it is quite possible that the agreement period could be extended to stabilize the financial market.
The trade truce between the US and China, along with ongoing discussions surrounding Russia and Ukraine, has contributed to some stabilization, leading gold prices to drop nearly 9% from their peak of $ 3,500. Recently, there has been considerable talk about Central Banks purchasing gold. However, these institutions are also closely monitoring positive geopolitical developments, raising the question of why they would rush to buy gold rather than wait for more favourable prices.
In the present climate if conditions remain stable, gold prices are likely to continue to decrease.
However, a recent development has seen the rating agency Moody's downgrade the USA's credit rating by one notch, from Aaa to Aa1, due to concerns about interest costs and unsustainable debt growth. Although Moody's outlook for the US was improved from negative to stable, this downgrade could initially push gold prices higher. Still, in the absence of Central Bank acquisitions and weak investor interest, gold may lack the support and momentum necessary for significant upward movement.
Instead, this week presents more downside risk for gold. In the short term, gold may struggle to surpass the $ 3,260-80 range, and a fall below $3,105 could heighten the risk of testing the $3,050-$3,060 levels.
Nevertheless, we are in a period of uncertainty and cannot discount the possibility of abrupt geopolitical developments that could drive investor interest in gold to new highs.
This week, key economic indicators to monitor include US weekly jobless claims, the S & P Global flash PMI, and US existing and new home sales, all set to be released on Friday.
WEEKLY OUTLOOK - May 19-23
GOLD @ $ 3202— Following the upward movement, gold is anticipated to fall. Resistance levels are found at $ 3242 and between $ 3280-85. If it drops below $ 3135, it could potentially lead to a decline to $ 3105 or $ 3060.
EURO @ 1.1165— Euro may experience some upward movement. A rise above 1.1240 would push it towards 1.1305. However, if it drops below 1.1050, it could lead to a decline towards 1.0995.
GBP @ 1.3275— Pound Sterling is likely to move up a bit, but it needs to go above 1.3365 to reach 1.3405-15. If it drops below 1.3175, it could fall to 1.3105 levels.
JPY @ 145.63— USD has a support level at 144.20, which is expected to persist until it reaches 146.40. A breakthrough at this point could lead to a drop towards 147.20.
But if it falls below the support level, it might go down to 143.40.
Copyright Business Recorder, 2025
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