Gold Enjoys Tailwind from Recent Tariff Rumors from Trump’s Administration

The Bloomberg Dollar Spot Index slid as much as 0.4%, while the 10-year yield slipped three basis points to 4.75% after a report showed Trump’s economic advisors are discussing a slow and steady approach to tariffs rather than a large one-time increase. Such gradual restrictions could weigh on the dollar as they would slow inflationary pressure and potentially give more breathing room for the Federal Reserve to reduce interest rates.

The pullback in the dollar gauge followed five days of gains that drove it to a two-year high on Monday (Jan 13). The drop was its biggest since Jan 6, when the greenback fell following a Washington Post story that claimed Trump was planning to pare back tariff plans. The president-elect denied that story in a post on Truth Social.

“Dollar weakness can be sustained unless President Trump denies the reporting like he did in reaction to the report by the Washington Post,” said Carol Kong, a strategist at Commonwealth Bank of Australia.

Risk-sensitive currencies like the Australian and kiwi dollars jumped against the greenback, pointing to a sense of relief that a large tariff shock may be avoided. China’s offshore yuan, a prime selling target for traders betting on US tariffs, initially edged higher after the report.

The dollar’s drop underscores the key role tariffs play in swaying sentiment across the US$7.5 trillion-a-day foreign-exchange market. But the move may prove temporary: Most Wall Street banks expect the greenback to strengthen following an 8% rise in 2024, and blowout employment numbers last week have raised further questions about the pace of potential rate cuts.

A reading of producer prices later in the day will offer more clues into US price risks. Economists expect wholesale prices to rise on a monthly and yearly basis, according to a Bloomberg poll, which could support the dollar and keep upward pressure on US yields.

Goldman Sachs Group Inc sees potential for the dollar to climb 5% or more this year. Speculative traders including hedge funds and asset managers are more bullish on the greenback than they have been since 2019, according to Commodity Futures Trading Commission data compiled by Bloomberg for the week ended Jan 7.

“You can’t chase this thing, as a denial will be coming soon,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co in New York, said of the recent headlines. “Look through the noise and rest assured the dollar rally will continue on the US economic outperformance alone.”

Even those predicting that the greenback will lose steam think the decline may be some way off. The dollar is somewhat overvalued but a bout of dollar weakness is likely to be “more of a second-half phenomenon,” according to Mark Haefele, chief investment officer at UBS Global Wealth Management.

Knee-jerk reaction

The South African rand, South Korean Won and Taiwanese dollar led emerging market currencies higher on Tuesday. That pared losses since the start of the year, as investors shunned riskier assets in the face of the incoming Trump administration.

“The tariff headlines are positive for Asia FX as it suggests a less draconian approach, but at the moment it’s still headlines,“ said Eddie Cheung, a senior emerging-markets strategist at Credit Agricole CIB in Hong Kong. “While the knee-jerk reaction is positive, I think markets will still want a bit more confirmation.”

Source: Theedgemarkets

Source: Reuters

US President Joe Biden's outgoing administration is finalising rules on Tuesday that will effectively bar nearly all Chinese cars and trucks from the US market, as part of a crackdown on vehicle software and hardware from China.

Washington's latest move against Chinese vehicles comes after the Commerce Department said this month it was considering a similar crackdown on Chinese-made drones, in the wake of last year's steep tariff hikes on imports of its electric vehicles.

"It's really important because we don't want two million Chinese cars on the road and then realise...we have a threat," Commerce Secretary Gina Raimondo told Reuters in an interview, citing national security concerns.

In September last year, her department proposed a sweeping ban on key Chinese software and hardware in connected vehicles on American roads, with software prohibitions to take effect in the 2027 model year and those on hardware in 2029. They also bar Chinese car companies from testing self-driving cars on US roads.

The rules also cover Russian vehicles and components.

The US Commerce Department said in the final rules it was making some changes, such as exempting vehicles heavier than 10,000 pounds from the requirements, which would let China's BYD continue to assemble electric buses in California.

On Monday, the department said it planned to soon propose rules barring Chinese software and hardware in larger commercial vehicles, including trucks and buses. A final decision will be up to the incoming Trump administration.

In a shift, the department said the bans would not cover Chinese software developed before the new rules took effect, so long as it was not being maintained by a Chinese firm.

That means General Motors and Ford could potentially continue to import some Chinese-made vehicles for US buyers, a senior official told reporters.

The Alliance for Automotive Innovation, representing GM, Toyota Motor, Volkswagen, Hyundai Motor, and other major automakers, unsuccessfully sought an additional year to meet the hardware requirements.

Polestar, the Swedish automaker that is a brand of China's Geely warned in October that without changes the Commerce rule would "effectively prohibit" it from selling vehicles in the US.

An administration official said officials expect Polestar would need to seek specific authorisation under the final rule. Polestar declined to comment.

In September, the Biden admnistration finalised steep tariff hikes on Chinese electric vehicle imports, and this month, it put key Chinese battery company CATL on a list of firms accused of aiding the country's military.

US President-elect Donald Trump, who takes office on Jan 20, wants to prevent Chinese auto imports but is open to Chinese automakers building vehicles in the US.

Source: Theedgemarkets

Bitcoin experienced significant selling pressure on Jan. 13, falling below $90,000 for the first time in eight weeks. This decline represented a 12.5% price drop over seven days, tempering traders’ optimism. Despite this, Bitcoin derivatives metrics signaled a neutral to bearish outlook, suggesting that whales and market makers remained largely unaffected by the downturn.

Bitcoin 2-month futures annualized premium. Source: Laevitas

Bitcoin futures monthly contracts typically trade at a premium over the spot market due to their longer settlement period. The current annualized premium of 11% exceeds the neutral range of 5% to 10%, reflecting optimism among market participants. Similarly, the funding rate for perpetual BTC contracts — preferred by retail traders — has remained positive, indicating a neutral to positive sentiment.

Bitcoin perpetual futures 8-hour funding rate. Source: LaevitasOnn

This uncertainty pushed the 10-year US Treasury yield to its highest level since November 2023, signaling that traders demand higher returns to hold government bonds. Such dynamics often reflect fears of inflation or recession, compounded by weakness in the broader stock market.

US Dollar Index (left) vs. US 10-year Treasury yield (right). Source: TradingView / Cointelegraph

Source: Cointelegraph

The EUR/JPY cross builds on the overnight recovery from the 160.00 psychological mark, or a nearly one-month low and attracts some follow-through buyers on Tuesday. Spot prices stick to positive bias through the first half of the European session and currently trade around the 161.75-161.80 region, up nearly 0.45% for the day. 

Against the backdrop of the uncertainty surrounding the likely timing of the next rate hike by the Bank of Japan (BoJ), the risk-on mood undermines the safe-haven Japanese Yen (JPY) and lends support to the EUR/JPY cross. Apart from this, a modest US Dollar (USD) downtick benefits the shared currency and contributes to the intraday move up. That said, the European Central Bank's (ECB) dovish bias might cap the Euro and the currency pair. 

From a technical perspective, strength beyond the 50-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the downfall witnessed over the past week or so favors bullish traders. Moreover, positive oscillators on the 1-hour chart support prospects for additional intraday gains. Hence, a move beyond the 162.00 mark, towards testing the 100-hour SMA and the 50% Fibo. level confluence near the 162.25 area, looks like a distinct possibility. 

On the flip side, weakness below the 161.50 area, or the 50-hour SMA, could be seen as a buying opportunity and remain limited near the 161.00 round-figure mark (23.6% Fibo. level). A convincing break below the latter could make the EUR/JPY cross vulnerable to accelerate the slide back towards the 160.00 mark, with some intermediate support near the 160.60-160.55 region. The downfall could extend further towards the 159.50 support zone.

EUR/JPY 1-hour chart

Source: FXSTREET