Softer economic data from the US is hindering recovery and negatively impacting consumer sentiment, which relies on increased spending. However, the risk of rising consumer inflation in the US over the next few months has significantly increased, potentially leading to a higher unemployment rate.
This recent decline can be attributed to concerns over tariffs on imported goods and the sudden shift in US government policy aimed at reducing spending. The likelihood of a trade war could adversely affect the global economy.
Additionally, the recent US economic indicators do not inspire confidence regarding inflation and overall economic conditions.
Last week, Trump reiterated his position by stating his intention to impose a 25% tariff on the automobile, electronics, and pharmaceuticals sectors. Expanding his list of tariffs, he included forest products and lumber.
Given the new administration’s policies, the risk of a slowdown in the US economy in the coming months remains elevated. Meanwhile, the Federal Reserve’s FOMC minutes indicated that the central bank is concentrating on potential inflation
impacts rather than succumbing to the administration’s calls for lower
interest rates.
The Fed needs to remain vigilant about the economic repercussions of tariffs, which may result in a delay of interest rate cuts.
Additionally, geopolitical issues in Europe are significant for financial markets. There is some optimism about the prospects for concluding the Russia-Ukraine war, though it remains complex.
However, market attention is mainly focused on the German elections, as their outcome will shape European economic policy for the coming years.
The result of the Germany election is crucial for the Eurozone economy, which is in need of the compelling leadership it once had.
While the political instability in Italy and Spain can be managed to some degree, it becomes intolerable in Germany and France, the two largest member states that drive the Euro area and are now approaching a state of stagflation.
Therefore, a strong economy and effective leadership are essential for both the nations and the Eurozone.
GOLD
Gold is experiencing significant volatility, caught between corrective pressures and the risks of geopolitical tensions and tariffs that will continue to influence its movements. This week is also expected to show erratic fluctuations in gold prices.
A downward adjustment is likely, but geopolitical issues could serve as upward influences.
Gold prices are nearing the $ 3000 mark and even if they don’t reach it, the market is anticipated to test new all-time highs.
Physical demand for gold has surged to record levels, while supply remains constrained.
Initial boosts in gold prices came from Russian, Chinese, and Iranian purchases, but now other central banks, such as those in India, Turkey and few others are contributing to a market capitalization that has reached almost $ 20 trillion.
As global USD foreign exchange reserves holdings decline to 58% alongside a US national debt of about $ 36 trillion and high interest rates for debt servicing, gold becomes a more appealing asset.
Therefore, until a viable alternative emerges, gold is likely to remain attractive to global investors and large correction will not occur.
As this article goes to press, the results of the German elections, which could influence financial markets, are expected to be announced, marking a key event of the week.
Other important updates include US consumer confidence, new home sales, fourth-quarter GDP, durable goods orders, and jobless claims.
However, the focus will primarily be on Friday’s Core PCE index alongside data on income and spending, which are considered the Fed’s preferred indicators of inflation.
GOLD @ $ 2935— Though mildly bullish, gold is set for a turbulent week. On the positive side, a breakout above $ 2970-75 could lead to a rise towards $ 2995 or beyond. However, a drop below $ 2910 might push it down towards $ 2895 or $ 2882-86.
EURO @ 1.0456— Euro is likely to face resistance around 1.0580, or possibly at 1.0650. If it drops below 1.0320, there is a risk of it falling to 1.0230.
GBP @ 1.2630— Following an upward movement, Pound Sterling is expected to stabilise near 1.2700. If it breaches 1.2530, it could lead to a decline towards 1.2480. Otherwise, it may reach 1.2660.
JPY @ 149.23— Once USD drops below 149.80 it is likely to find support near 148.70, potentially paving the way for a rise to 151.60 if it breaks past 150.40, before continuing its downward trend.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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