Why I’m watching gold, the dollar, and the yen closely in the new Trump era

How will Trump’s tariff policies and Federal Reserve interest rate decisions shape the financial markets in the new Trump era? Trading expert and analyst Terence Hove breaks down the key trends affecting gold (XAU), the US Dollar Index (DXY), and the Japanese yen (JPY)—and why keeping an eye on these assets is important.

As a trading analyst, I closely monitor market-moving factors, and Trump’s return to the presidency has introduced a new layer of volatility. From gold surging to record highs amid economic uncertainty to the US Dollar Index weakening due to shifting Federal Reserve interest rate decisions, we are seeing key trends unfold. Meanwhile, the Japanese yen remains a wildcard, reacting to both global risk sentiment and Japan’s monetary policies. In this article, I’ll break down how these three assets—gold, the US dollar, and the yen—are responding to Trump’s policies and the broader economic landscape, and what traders should watch in the months ahead.

Key takeaways  

1. Why is gold hitting record highs? Safe-haven demand is surging as investors react to Trump’s tariff policies and global economic uncertainties. But will this trend continue?
2. Is the US dollar losing its strength? The US Dollar Index has weakened despite initial post-election gains. Could upcoming Federal Reserve interest rate decisions push it even lower
3. The yen’s unpredictable moves The Japanese yen initially strengthened as a safe-haven asset, but mixed signals from global markets and Japan’s monetary policy are creating uncertainty.
4. The role of interest rates in all this: Lower interest rates typically boost gold and weaken the dollar. What will potential rate cuts in 2025 mean for investors?
5. How should traders prepare? Navigating this volatility requires a strategic approach, balancing technical and fundamental analysis to identify strong trade opportunities. Are you ready?

The impact of Trump's return on financial markets

Donald Trump's return to the presidency has significantly impacted financial markets, particularly gold, the US Dollar Index (DXY), and the Japanese yen (JPY). Since his inauguration, these assets have experienced notable shifts, reflecting market sentiment and investor reactions to his policies.

Gold: A safe-haven amid uncertainty

Rising gold prices and market volatility

Since Trump's inauguration, gold prices have surged, reaching unprecedented highs. This increase can be largely attributed to heightened market volatility and uncertainty resulting from his aggressive tariff policies. Following the tariff announcements against other countries, market participants gravitated towards safe-haven assets such as gold. Consequently, prices experienced a sharp rise, surpassing 2,900 USD per ounce, reflecting the increased demand from investors seeking to hedge against potential inflation and geopolitical risks associated with Trump's trade approach.

Factors driving gold prices

Several critical factors are anticipated to influence the price of gold:

• Inflation hedge: Gold is often regarded as a hedge against inflation, maintaining its relative stability even as purchasing power diminishes. Prolonged inflationary pressures could sustain gold at a premium, potentially driving it to new heights.
• Geopolitical tensions: Conflicts in Eastern Europe and the Middle East, and trade disputes between the United States and China could push traders toward gold. Continued or escalating conflicts may sustain the current upward trend.
• Monetary policy influence: Central banks' monetary policies, particularly interest rate policies, significantly impact gold prices. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, increasing their appeal. Projections suggest that US interest rates may decline in 2025, which could weaken the dollar and boost gold prices further.

The US Dollar Index (DXY) under Trump

The US Dollar Index's decline and market sentiment

In contrast to gold, the US Dollar Index has seen a decline of over 1.2% since Trump's inauguration at the time of writing. Although the dollar initially strengthened following his electoral victory, it subsequently reversed course due to possible profit-taking activities and delays in the implementation of tariffs. The market had anticipated a robust dollar; however, Trump's indecisiveness regarding immediate tariffs played a role in the dollar's weakening as fears of inflation diminished.

Federal Reserve's role in the US Dollar Index’s movements

Additionally, indications from the Federal Reserve regarding a potential slowdown in the reduction of its balance sheet have exerted further pressure on the dollar. Key considerations include:

• Inflation expectations: Inflation concerns influence the dollar's strength, with potential rate cuts by the Fed reducing its appeal.
• Interest rate projections: A decline in interest rates in 2025 could further weaken the US Dollar Index, making gold and other assets more attractive.

The Japanese yen (JPY) and its mixed performance

The yen’s role as a safe-haven asset

The Japanese yen has exhibited a mixed performance amid these developments. Following Trump's inauguration and the resulting market reactions, the yen initially appreciated against the dollar due to its status as a safe-haven currency. However, sustaining these gains has been challenging due to global market fluctuations driven by ongoing trade negotiations and Trump's economic policies.

The influence of Japan’s monetary policy

The recent rate hike by the Bank of Japan also influenced the dynamics of the Japanese yen, as it sought to stabilize its economy in the face of external pressures. Other factors impacting Japanese yen include:

• Global risk sentiment: Investors tend to flock to the yen during periods of uncertainty, but fluctuations in trade policies can lead to mixed performance.
• Interest rate adjustments: The Bank of Japan's policy decisions significantly impact Japanese yen’s strength, especially in relation to US interest rate movements.

Navigating market volatility in the Trump era

Trump's presidency has initiated a phase of volatility in financial markets, characterized by rising gold prices amid uncertainty, a declining US dollar influenced by profit-taking and delayed tariff actions, and varied impacts on the Japanese yen shaped by both domestic monetary policy and global economic conditions.

Why these instruments matter

These instruments reflect market sentiment and how global investors might react to economic risks linked to Trump’s policies. Understanding these movements is crucial for navigating financial markets effectively:

• Gold (XAU): A safe-haven asset that performs well in uncertain times, especially during political shifts.
• US Dollar Index (DXY): Tracks the value of the US dollar against other currencies and provides insight into shifts in the global economy.
• Japanese yen (JPY): Acts as a safe-haven currency, strengthening during periods of political or market instability.

Looking ahead: Key considerations for investors

Looking ahead, expectations regarding inflation, geopolitical tensions, and central bank monetary strategies could further elevate gold's appeal as a safe-haven asset. As economic concerns mount and the prospect of lower US interest rates emerges, investors may find gold an increasingly attractive investment option.

Risk assessment and strategy

Investors should validate all risk parameters by aligning technical and fundamental analysis to establish strong trade ideas. Key approaches include:

• Technical analysis: Examining price charts, trends, and patterns to identify potential trade opportunities.
• Fundamental analysis: Evaluating economic indicators and market news to understand the broader economic landscape.

Final thoughts

From gold’s surge to the weakening dollar and the yen’s uncertain trajectory, financial markets are reacting in real-time to Trump's policies and the Federal Reserve’s decisions. I believe we are entering a phase where market reactions will be increasingly driven by policy shifts and economic sentiment, making adaptability and informed decision-making more important than ever.

As traders, we must stay ahead of these trends, closely monitoring price movements and macroeconomic indicators. My approach is always to combine technical analysis with fundamental insights, ensuring I have a well-rounded strategy to navigate volatility.

If you're a trader or investor looking to stay ahead, now is the time to sharpen your strategy. Follow our latest insights and tips to make well-informed trading decisions, and remember always to test your strategies on a risk-free demo account.