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05.03.2025 01:23 PM
Will the New Economic Policy Boost U.S. Economic Growth? (Potential for Renewed Gold Price Increases and a Decline in USD/JPY)

Yesterday, investors anxiously awaited the much-anticipated speech by Donald Trump, which, as expected, featured sharp criticism of Joe Biden's presidency and grand promises of generating "trillions and trillions" of dollars through tariff barriers on foreign imports. According to Trump, these tariffs would revive domestic manufacturing and strengthen the national economy.

While his speech triggered a wave of criticism from the opposition, it failed to spark any major market disruptions. Trump emphasized the need for protective tariffs to support American industries and promised to secure domestic sources of rare-earth metals, reducing U.S. dependence on Asian (primarily Chinese) markets.

Markets responded to his speech with a slight rebound in U.S. stock indices, a modest uptick in Treasury yields, and a temporary surge in cryptocurrency prices. However, the U.S. dollar took a significant hit, depreciating against a basket of major currencies. This decline wasn't solely due to Trump's rhetoric—escalating tensions between the U.S. and Europe also played a role.

European Commission President Ursula von der Leyen unveiled a new EU defense industrial strategy, aiming to mobilize approximately €800 billion. She also proposed greater tax flexibility for EU member states to stimulate defense investments and introduced €150 billion in credit lines to support these efforts.

This announcement drove strong demand for the euro, especially against the U.S. dollar, amid expectations that increased defense spending would boost the European economy. Additionally, Germany's plan to establish a €500 billion infrastructure fund and revise borrowing rules to expand defense and economic growth provided further bullish momentum for the euro.

Despite these developments, markets remain cautious, as the global trade war continues to escalate. New U.S. tariffs on Canada, Mexico, and China have taken effect, triggering retaliatory measures from these countries. Investors are concerned that the U.S. economy could suffer significant damage from prolonged trade conflicts. There is growing skepticism about whether Trump's economic policies will be enough to reignite economic growth.

Market Outlook for Today

Today, the market's primary focus will be on the ADP private sector employment report. The consensus forecast suggests a decline in new jobs from 183,000 in January to 141,000 in February.

Additionally, attention will be on the services PMI data. Expectations are for a decline from 52.7 in January to 49.7, signaling negative momentum in the services sector. Similarly, the ISM non-manufacturing index is projected to slow from 52.8 to 52.5.

How Might Markets React to Weak U.S. Data?

If the economic reports disappoint, the U.S. stock market could resume its decline, while the dollar weakens further and pressure mounts on cryptocurrencies. On the other hand, gold may benefit as a safe-haven asset, potentially retesting its recent all-time high of $2,955.65.

Conversely, stronger-than-expected data could temporarily reverse market trends, offering relief to the dollar and equities.

Daily Forecast:

This image is no longer relevant

This image is no longer relevant

Gold (XAU/USD):If U.S. economic data falls short of expectations, demand for gold as a safe-haven asset could increase. This scenario might lead to a retest of the recent high at $2,953.00.

USD/JPY:The pair is currently trading slightly above 149.50. Negative U.S. data could push the pair lower, potentially testing the 148.00 level.

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