Monetary policy moves to foreground

Back from my writing break, I feel as though the world is still on holiday, both at home and abroad – except for the financial markets, which never take a break save weekends and public holidays. Last week in particular saw a flurry of events, with the US government tariff truce coming to an end, to be extended at short notice until today, Thursday. In addition to a Fed meeting, we have seen the publication of US labor market data.

Particular focus on US-Japanese and EU tariff negotiations  

US President Trump imposed a basic tariff of 15 per cent on exports from Japan and EU countries to the US, with the exception of, amongst others, steel and aluminum. This is a rate significantly above that of earlier this year. As Trump had previously threatened even higher tariffs, the markets were relieved. Higher-risk securities such as stocks saw an uptick, with various US stock indices reaching record highs.

Fed dampens expectations of early interest rate cut

On 30 July, following the Fed monetary policy meeting, its governor was noticeably more cautious on the subject of interest rate cuts than expected by the financial markets. This immediately triggered a sharp rise in US Treasury bond yields and a robust appreciation of the US dollar.
Weak US labor market data

The trend reversed on 1 August after the US labor market data for July came in unexpectedly weak.

A significant downward revision of the previously reported data on new hires in May and June by around 258,000 caused the markets to factor in a Fed interest rate cut in September with near certainty on the interest rate futures markets. Yields on Treasuries, particularly short-term, dropped sharply, and the US dollar relinquished its gains of 30 July.

Gold with slight weekly gains

These events did not leave gold prices unaffected, although the fluctuations were mostly undramatic. On Thursday morning, 17 July, gold traded 3,340 US$ per ounce and rose to around 3,439 by 23 July, a one-month high. However, it then dropped, particularly following the Fed meeting mentioned above. On 30 July, gold hit its one-month low at 3,268 US$ per ounce. Following the weak US labor market data, the precious metal recovered to 3,390 and kicked off trading today at around 3,375.

The Xetra-Gold price fluctuated quite strongly at times, also impacted by the unseady euro-US dollar exchange rate. It rose from 92.35 € per gram on Thursday morning, 17 July, to 94.15 on 22 July. After falling back to 91.20 on 25 July, it recovered to 94.20 on 5 August. If the 8:00 price holds true, Xetra-Gold is likely to start trading at around 93.00 € per gram this morning.

Tariffs and key interest rates continue to dominate

The current low trading volumes due to the summer holiday season could continue to cause significant volatility and tariffs remain a dominant topic. As of this morning, for example, Switzerland was subject to tariffs of 39 per cent and India will be subject to tariffs of 50 per cent from 27 August. However, questions about when and how often the Fed will cut interest rates in the coming months have recently come to the fore again.

I wish all readers a happy summer weekend.