A negative vibe lingered across financial markets on Friday, after President Donald Trump’s vow to impose severe tariffs on imports of steel and aluminum sparked fears of a global trade war.
In a move that dealt a blow to global sentiment, Trump said on Thursday that the United States would set tariffs of 25% on steel imports and 10% on aluminum. This bombshell development is likely to fuel concerns of retaliatory actions from major U.S. trade partners consequently weighing on risk appetite. Investors are clearly jittery by the threat of a potential global trade war and its possible effect on stock markets.
Asian equities were under intense selling pressure during early trading on Friday, following the market's painful declines overnight. In Europe, shares ventured lower, as investors maintained a safe distance from riskier assets. The negative sentiment from Asian and European markets could find its way back into the market's this afternoon.
Dollar slips on Trump’s tariff hikes
The dollar sharply depreciated against a basket of major currencies on Thursday evening after Trump’s tariff announcement sparked market jitters. Federal Reserve Chairman Powell’s softer tone during his second day of testimony also played a role in the Greenback’s decline -- with the U.S. Dollar Index trading around 90.20 as of writing. While heightened worries of a trade war could pressure the dollar, speculation over higher US interest rates has the ability to cushion the downside. Focusing on the technical picture, the Dollar Index is at threat of extending losses if bears are able to conquer the 90.00 level.
Sterling turns to Theresa May for direction
This is certainly shaping up to be a painful trading week for the British Pound, thanks to renewed jitters over Brexit negotiations. The fresh dispute over Northern Ireland’s border has effectively eroded market optimism over a “soft Brexit” outcome, consequently weighing heavily on the Pound.
Theresa May will be in the spotlight today as she delivers a speech about Britain’s future relationship with the European Union after Brexit. Markets will be closely scrutinizing May’s remarks for any fresh clues on how the UK plans to address the European Union’s Irish border proposal. Sterling could turn volatile today, especially when considering how the currency remains highly reactive to Brexit developments.
Taking a look at the technical picture, the British pound/U.S. dollar (GBP/USD) currency pair remains bearish below 1.3850. Sustained weakness below this level could invite a decline back towards 1.3750 and 1.3700, respectively.
Commodity spotlight: Gold
Gold staged a sharp rebound on Thursday evening after Trump’s tariff plan sparked risk aversion and weakened the dollar.
While the yellow metal could venture higher in the near term amid the skittish market sentiment, losses are likely to be limited by U.S. rate hike expectations. It must be kept in mind that gold is a zero-yielding asset, which will feel the burn in a high-interest rate environment. From a technical standpoint, prices remain under pressure below $1,324.15 per ounce. A failure for bulls to break above this level could result in a decline back toward $1,310 and $1,300, respectively. Alternatively, a breakout above $1,324.15 may pave a way higher back to $1,340.