The British pound maintained its position near a six-week high against the US dollar on Tuesday, trading at $1.2721. This stability comes as European leaders work to finalize a peace proposal for Ukraine before discussions with Washington. Concurrently, the US dollar weakened after President Trump confirmed the implementation of new tariffs – 25% on imports from Canada and Mexico, and 10% on goods from China.
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The US dollar index, which measures the greenback’s performance against a basket of six major currencies, fell 0.4% to 106.32. This decline reflects investor concerns about a potential escalation in global trade tensions. Retaliatory measures from China and Canada in response to the US tariffs have heightened fears of a broader trade war.
US Economic Data and Federal Reserve Policy
Market attention is now focused on upcoming US economic data, including Friday’s February non-farm payrolls report. This report is expected to shed light on the Federal Reserve’s monetary policy stance. Current expectations are that the central bank will maintain interest rates at its March and May meetings. CME’s FedWatch tool indicates a 77% probability of a rate cut in June.
European Peace Efforts and Sterling’s Performance
The pound also benefited from European leaders’ efforts, alongside Ukrainian President Volodymyr Zelenskyy, to develop a structured peace plan to resolve the ongoing conflict in Ukraine. Hopes for a resolution have boosted market sentiment, with investors anticipating that a truce could stabilize supply chains and support economic recovery.
Against the euro, the pound was slightly lower on Tuesday morning, trading at €1.2090.
Gold Prices Surge Amidst Trade Tensions
Gold prices rallied on Tuesday, exceeding $2,900 per ounce. This surge is attributed to investors seeking safe-haven assets amid escalating trade tensions following the latest round of US tariffs.
Spot gold rose 1.5% to $2,911.83 per ounce, while gold futures gained 0.6% to $2,918.80. This rally reflects growing concerns about economic uncertainty fueled by the US tariffs on imports from Mexico, Canada, and China. Retaliatory measures from Beijing and Ottawa have further amplified investor anxiety, driving demand for gold as a hedge against potential market volatility. However, potential further gains in gold prices could be limited by expectations that the Federal Reserve might maintain higher interest rates for a longer period if US inflation remains elevated. Higher interest rates typically negatively impact non-yielding assets like gold, diminishing their attractiveness.
Pete Walden, managing director of BullionByPost, noted that Trump’s recent tariff announcements have rattled markets and increased economic uncertainty, leading to a surge in gold prices as investors seek safe havens. JPMorgan holds a long-term bullish view on gold, projecting a price target of nearly $3,000/oz by the fourth quarter of 2025.
Oil Prices Plunge to Yearly Lows
Oil prices plummeted to their lowest levels of the year, driven by anxiety over US tariffs and retaliatory actions from Canada and China.
Brent crude futures fell 1.4% to $70.65 per barrel, the lowest since early December. US West Texas Intermediate (WTI) crude declined 1% to $67.66 per barrel, also a 2025 low. The market was further impacted by news that OPEC+ will proceed with a planned production increase in April, adding 138,000 barrels per day to the supply. Joseph Dahrieh of Tickmill highlighted the downward pressure on crude oil futures due to OPEC+’s production increase and uncertainty surrounding US trade policy.
Geopolitical factors also contribute to the bearish outlook for oil. Progress in European-led peace talks could ease sanctions on Russia, potentially increasing the availability of Russian oil in global markets. Conversely, the US tariffs on Canadian and Mexican imports, including energy products, could dampen economic activity and reduce fuel demand. With persistent global economic uncertainty, analysts caution that oil prices may remain under pressure. The International Energy Agency has warned of a supply surplus this year. Saudi Aramco, the world’s sixth-largest company by market value, reported a 12% drop in annual profits to $106.3bn (£83.7bn) amid lower energy prices. Warren Patterson of ING emphasized the dual pressures on oil from US tariffs and OPEC+ supply plans, warning that retaliatory tariffs could escalate trade tensions and further cloud the global growth and demand outlook. In broader market activity, the FTSE 100 declined 0.7% to 8,812.33 points on Tuesday morning.
