Friday forex follies: All that glitters is Gold

Asia wrap

A political landmine was successfully dodged in Washington, sparking a relief rally across Asian stocks and US and European equity-index futures on Friday. With signs pointing to the US avoiding a government shutdown, traders rushed to cover their weekend hedges, fueling a short-term bounce in risk assets.

But let’s not kid ourselves—this is still a market running on edge. Volatility remains the name of the game, and the whipsaw action isn’t going anywhere anytime soon. Investors are riding a rollercoaster with no brakes, courtesy of Trump’s tariff tantrums and the ever-evolving policy backdrop. Flip a coin on the next headline risk—because in this environment, market direction can turn on a dime. Buckle up, because the foreseeable future looks just as uncompromising as the last two weeks.

Gold markets

Gold surged to yet another record high as President Donald Trump’s aggressive tariff blitz and a weaker-than-expected inflation print stoked fresh fears over US growth, driving investors into safe-haven assets. Bullion soared to $2,990.21 an ounce, smashing all-time highs set earlier in the week as risk sentiment continued to deteriorate.

The latest blow to risk markets, bullish for gold, came Thursday when Trump doubled down on his trade war, threatening a 200% tariff on European wine, champagne, and other alcoholic imports. Adding fuel to the fire, he ruled out repealing the steel and aluminum levies that went into effect this week and reaffirmed his commitment to sweeping reciprocal tariffs set to take effect as early as April 2.

The equation remains simple for gold: the higher the tariffs, the greater the uncertainty—and the stronger the bid for bullion. Markets are quickly recalibrating to the reality that growth concerns are now taking precedence over inflation worries, reinforcing gold’s role as the ultimate hedge in an increasingly fragile economic backdrop. With risk appetite fading and policymakers seemingly boxed in, gold’s relentless rally may still have legs.

Forex markets

One fascinating dynamic likely helping to keep EUR/USD afloat above 1.0800 is the resilience of eurozone bonds relative to the Bunds. That strength, however, feels more like a sugar high than a structural shift—history tells us that these spreads will widen once the reality of EU fiscal agreements sinks in and the post-announcement honeymoon fades.

Meanwhile, Treasuries are getting whipsawed, caught between three major crosscurrents. First, the risk-off bid remains strong, with investors seeking refuge in bonds as markets get rattled by trade war theatrics. Second, the inflation story remains a messy puzzle. Headline PPI and CPI came in softer than expected, but dig into the details, and the stickier components—like CPI ex-airline prices and PPI inputs feeding into PCE—suggest inflation isn’t cooling as much as markets had hoped. Core PCE is now tracking at a firm 0.3% MoM, keeping the Fed stuck between a rock and a hard place. Third, Thursday’s 30-year Treasury auction tailed—an unsurprising development given that strong demand for 10-year paper earlier in the week typically drains appetite for the long end. But the broader takeaway? Supply pressures aren’t going anywhere, and February’s fiscal data only reinforces the growing wave of issuance coming down the pipeline.

From a trading lens, the clearest signal is that Treasury yields will likely be stuck in a 4-5% range over the next year. That means trying to pick a long-term directional bias for the US dollar is a fool’s errand. And honestly, that’s a good thing—staying flexible and trading short-term signals is where the real edge lies in this market. With policy uncertainty, geopolitical landmines, and central bank jawboning driving wild swings, there’s no point in making bold macro predictions when the only certainty is more volatility ahead.

Despite this week’s cooler inflation prints, the dollar remains well-supported as traders position ahead of the upcoming PCE inflation report—the Fed’s preferred gauge. According to the playbook, a firm PCE should keep the Fed in inflation-defense mode rather than pivoting toward growth-offset mode (rate cuts). In other words, the market is being forced to reckon with the fact that softer CPI and PPI don’t necessarily mean the Fed is anywhere close to opening the floodgates for easing.

The setup remains volatile with tariff uncertainty still swirling, bond market liquidity getting tested, and the yield curve refusing to play nice. In the short, the dollar has the fundamental backing to hold its bid, and barring any left-field surprises, I’ll continue riding the current positioning into next week’s action.