Gold keeps its upside momentum on Wednesday while dollar weakens due to increasing rate cut expectations following Fed Chair Jerome Powell’s statement on Tuesday. G20 finance leaders meeting will be held this weekend ahead of G20 leaders summit at the end of June and it is announced that US Treasury Secretary is scheduled to meet People’s Bank of China’s Governor Yi Gang. While the world economy is slowing down alongside trade disputes, US factory orders declining in April following weak manufacturing data released earlier in the week showed that slowdown was sharper than previously anticipated in the second quarter. In the meantime, in Australia where central bank cut the rates yesterday to support economy, the economy showed the worst growth performance since the global crisis in the first quarter, according to data released today.
Uncertainty increased due to trade war alongside slowing global economy and gold prices kept its upside momentum on Wednesday by hitting the highest since mid-February while dollar weakened following Fed Chair Jerome Powell’s comments stating that effects of trade issues on US economy would be watched closely and appropriate monetary policy would be followed to maintain sustainable growth.
As of 16:10 GMT+3, spot gold was trading at $1,342.22 while dollar index was down to 96.85. US 10-year Treasury yield edged down to 2.08.
DailyFX analyst David Song said on Reuters that there seemed to be no end to trade disputes considering US President Donald Trump imposing tariffs on Mexico while adding markets started to consider that these issues might not only affect US economy but also take a toll on the world economy.
Moody’s Analytics senior economist Stephen Ciccarella said there was bumpy road ahead due to slowing global economy as well as trade disputes between the US and its trade partners while adding supply chain relation between the US and Mexico was more intertwined than the one between the US and China, so 5% tariff on Mexico would affect the US economy much more significantly than it otherwise would.
By the way, G20 finance leaders meeting will be held this week in Japan ahead of G20 summit at the end of June and it was announced that US Treasury Secretary Steven Mnuchin would be meeting People’s Bank of China’s Governor Yi Gang. This will be the first face-to-face meeting between two countries’ officials after trade talks ended without a deal last month.
In the meantime after weak manufacturing data released earlier this week, US factory orders were reported to have declined by 0.8% in April which showed economic slowdown was sharper than previously anticipated. Economists think the economy would recover in the second half of the year but some evaluates this expectation might be a little bit too optimistic.
In Australia, where central bank announced a rate cut yesterday to support economic growth, inflation and employment, the economy grew by 0.4% quarterly and 1.8% annually in the first quarter, showing the worst growth performance since the global crisis. Considering that long term growth trend is 3.5%, it is obvious that Australian economy is losing its steam while it was stated that fiscal and monetary stimulus would be needed to support employment and inflation.