Gold prices buoyed by tariff fears; US duties on 1-kilo bars spur supply concerns
Investing.com - The US dollar has slipped marginally lower this week, and amid all the noise impacting financial markets, the foreign exchange market has been primarily focused on tariff uncertainty, according to Bank of America Securities.
At 08:20 ET (13:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 108.045, but still marginally lower on the week.
Ahead of the presidential inauguration, market speculation that some broader tariff announcements would be on the “day 1” agenda sent the Dollar Index to its 2-year highs. Since then, as no formal announcements have yet been made, the dollar has underperformed its G10 peers, which have benefitted from this mini-relief rally to start the year.
That said, markets remain on edge, analysts at the US bank said, in a note dated Jan. 29, and the range of possible outcomes is quite wide, with focus now on a possible February 1 announcement, at least for Canada and Mexico.
Indeed, despite the lack of formal announcements to date, President Trump has made continual references to tariffs, including in his speech to the World Economic Forum, and following Treasury Secretary Bessent’s stated preference for an escalating 2.5% per month rate (to 20%).
Much of this discussion has centered around using tariff leverage as part of a broader initiative to bring manufacturing into the US, with tax cuts serving as a possible/partial off-set/incentive. While anything on this front will likely take time to implement in practice, there appear to be literally no constraints for market moving headlines.
“We maintain our base case that tariffs are just one part of what will be a series of trade/policy negotiations, but recognize that the sequencing could be to ‘tariff first, negotiate last’,” the bank said.
Nevertheless, the absence of broad tariffs thus far as served as a bit of a relief rally for non-USD currencies, and risk assets more broadly (setting the impact of Deep Seek aside).
“Perhaps most noteworthy for FX, this broad USD move higher went against the broader shift in rate differentials, which have been on a steady narrowing path (against the USD) since just after the December FOMC,” said BOA Securities.
“We view this partial dislocation as a proxy for the so-called “tariff premium”. And while this has narrowed over the past few weeks as the USD depreciated, it still remains quite evident. Any broad and aggressive tariff announcement would likely see the DXY re-test and exceed its January highs,” BOA added.