Markets React to Tariff Escalation and Central Bank Signals (06.02.2025)

ECB Signals More Action as Eurozone Outlook Wavers

EUR/USD rebounded to near 1.1370 in Monday’s Asian session as the US Dollar weakened after legal shifts in tariff rulings. On Thursday, the US Court of Appeals backed Trump’s tariff policy, overturning Wednesday’s lower court decision that had declared his April 2 executive orders unlawful.

Trade tensions escalated as Trump announced plans to double tariffs on steel and aluminum imports to 50%. In response, the European Commission warned it would retaliate, despite both sides agreeing to accelerate talks after extending the EU tariff deadline to July 9.

Meanwhile, Eurozone economic concerns persist. ECB’s Klaas Knot cited inflation uncertainty, while François Villeroy de Galhau said policy normalization is likely not finished, suggesting more action ahead.

The key resistance is located at 1.1460 and the first support stands at 1.1300.

Yen Rises Amid Trump Tariff Threat and China Dispute

The Japanese yen rose to around 143.5 per dollar on Monday, marking its third straight session of gains as rising global trade tensions lifted demand for safe-haven currencies. The move followed President Trump’s threat on Friday to double tariffs on steel and aluminum imports to 50% starting June 4. Japanese steelmakers like JFE Holdings and Kobe Steel fell, while Nippon Steel was less affected after Trump praised its planned merger with U.S. Steel. Meanwhile, U.S.-China tensions grew as China denied Trump’s claim of breaching a recent Geneva trade agreement. On the domestic front, Japan’s Q1 capital spending beat expectations, with investment rising across both manufacturing and services, reflecting solid internal momentum.

The key resistance is at $143.50 meanwhile the major support is located at $143.00.

Gold Rises as Tariff Threats and Tensions Mount

Gold prices rose above $3,300 per ounce on Monday as investors turned to safe-haven assets amid escalating trade and geopolitical tensions. The gains followed President Donald Trump's announcement that tariffs on steel and aluminum imports would double to 50% from June 4. Legal uncertainty added to market stress, as an appeals court allowed a lawsuit to proceed after a lower court blocked the tariffs. Tensions with China also flared after Trump accused Beijing of violating a May tariff agreement, a claim China denied. Geopolitical concerns intensified following a Ukrainian drone strike that reportedly destroyed over 40 Russian aircraft, prompting a missile and drone response from Moscow ahead of upcoming peace talks in Istanbul.

The first critical support for gold is seen at $3290 and the first resistance is located at $3365.

GBP/USD Rises on Fed Cut Hopes, Risk Tensions Cap Gains

The GBP/USD pair rose in early Asian trading but stayed below 1.3500 as the US Dollar weakened after Friday’s PCE Price Index showed easing inflation, increasing Fed rate cut expectations. The dollar also came under pressure from renewed fiscal concerns after Trump’s large spending bill, the “Big Beautiful Bill.”

The Pound remained supported by expectations that the Bank of England will hold rates steady at its June 18 meeting and proceed cautiously.

However, broader risk aversion limited dollar losses, as Trump accused China of breaching a recent trade deal, adding to tensions from the Russia-Ukraine war and Middle East unrest, which lifted demand for safe-haven assets.

Markets now await the ISM Manufacturing PMI and Fed Chair Powell’s speech later Monday for further direction on the USD and GBP/USD pair.

The first critical support for gold is seen at 1.3425 and the first resistance is located at 1.3600.

Silver Nears $33.20 Amid Tariff Hike, War Concerns

Silver began the week with solid gains, trading near $33.20 on Monday morning, following the upward momentum in gold. The rally was fueled by President Trump’s declaration to raise tariffs on steel and aluminum imports to 50% starting June 4, coupled with ongoing legal disputes over the measures and his accusation that China breached a trade deal. Geopolitical tensions also intensified after Ukraine allegedly destroyed more than 40 Russian aircraft in a drone strike, triggering retaliatory attacks from Moscow ahead of scheduled peace talks in Istanbul.

The first critical support for gold is seen at 33.80 and the first resistance is located at 32.80.