The financial market is shifting as a result of a few major changes in the geopolitical environment and economic uncertainties. The US President has instructed the Commerce Department and its trade negotiators to develop a strategy for reciprocal trade with all nations that have levied tariffs on US imports. This has caused a temporary delay in the resolution of the tariff issue.
It is highly likely that the US will impose the same rate of taxes on international items as other countries do on the US goods. China has been the only country to respond to the US tariff decision by hitting specific US imports.
Although investors’ attention has switched from the current conflict to possible peace negotiations between Russia and Ukraine, this could eventually impact Europeans as well. Some new developments resulting from the Donald Trump-Vladimir Putin talks have caused some comfort for the European currency, which has recovered, in contrast to the USD as a safe haven currency. The prices of gold, oil, and other assets have decreased.
Meanwhile, Jerome H. Powell’s testimony before the Congress essentially emphasised that the US economy is doing well and that the Fed is not in a rush to lower interest rates. Furthermore, the minutes of the most recent FOMC (federal open market committee) meeting will serve as a guideline for future policymakers.
In the US, year-over-year inflation has already risen to 3%, the highest level since 2023. This must be a matter of concern for the Fed for two reasons. Firstly, the US inflation rate has been steadily rising in recent months and it is unclear how much the tariff would affect this rate. Secondly, there is no doubt that the market, which had been anticipating two rate cuts, will need to change its perspective.
Market players are debating whether the Fed’s decision to implement its initial 50 basis point rate cut was necessary or not. Or does the Fed’s soft landing approach have any rationale?
The obvious benefactor of the world’s uncertainty, gold, has risen by about 9% in just forty-five days. Due to excessive demand from central banks and physical demand worldwide, gold purchases will continue to rise even as global tensions ease. There is a noticeable decrease in the percentage of countries that hold US dollars in their Foreign Exchange Reserves.
It is evident that the percentage of global central banks holding USD in their Forex reserve is decreasing. Gold prices do not always decrease when tensions around the world subside.
The chance to purchase gold would arise when its price declines. Countries with significant holdings are now reluctant to make huge investments in USD assets or US bonds, which are seen as safe havens.
Although cryptocurrencies must be in high demand, their lack of fundamental values makes them extremely risky assets because they cannot be encashed under any obligations.
Lack of governance exposes them to a number of operational hazards, such as fraudulent transactions or problems relating to cyber security. Since cryptocurrencies are unregulated assets, they lack the requisite legal protections.
As a result, the global system’s enormous liquidity is left with relatively few options. All kinds of investors find gold more appealing as a result.
Under these circumstances, gold is more vulnerable to an upward trend and less exposed to the downside during the medium to long term.
Only a break of $2810 on the downside might cause it to drop even lower, near $2720. However, there is a chance that the upward break of $ 2998 will move it closer to $ 3180 or $ 3250 this year (Dec 2025).
WEEKLY OUTLOOK - Feb 16-21
#GOLD @ $ 2883- Good support for gold is located at $ 2846, which can be achieved upon a break of $ 2872. A rise above $ 2901 will bolster $ 2928 or $ 2948 on the upside. However, news about tariffs will make prices volatile.
#EURO @ 1.0490- It could move up a bit, but it will struggle to clear 1.0588 for 1.0640. On the downside, it has support at 1.0365 or 1.0310.
#GBP @ 1.2585- If the Pound Sterling breaks at 1.2660, it must rise over 1.2720 or else its upward momentum will be slowed. Support is at 1.2480, though, break risks for 1.2410.
#JPY @ 152.33- This writer anticipates that USD will hold at 151.30 for 153.80. However, unless it breaks through 154.98 for a further decline; the negative tick will stay in place. USD is expected to reach 148.80 in a few weeks if it moves below 150.10.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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