Gold Prices and Geopolitical Tensions

The New Zealand Producer Price Index (PPI) for the first quarter rose by 2.1%, which was much higher than the expected 0.1% increase. The EUR/USD fell to around 1.1130, hitting a three-day low, as the US Dollar strengthened, despite weak data from the U-Mich index. Meanwhile, GBP/USD dropped to 1.3250, influenced by a rise in US consumer inflation expectations. Gold prices fell below the $3,200 level, reversing earlier gains and marking the largest weekly loss of the year. This drop was driven by a stronger US Dollar and a decrease in geopolitical tensions. Ethereum is recovering above $2,500, thanks to the positive reception of the Pectra upgrade. This led to more EIP-7702 authorizations, showing strong adoption by wallets and decentralized applications. Former President Trump’s Middle East visit in May 2025 resulted in trade agreements aimed at improving US trade relations. These agreements focused on correcting trade imbalances and enhancing US technology and defense exports. In forex trading, using leverage carries high risks because of the potential for significant losses. Traders should carefully evaluate their experience and risk tolerance before engaging in leveraged trades.

Knock-On Effects of Price Index Rise

The surprising 2.1% rise in New Zealand’s PPI for the first quarter has led to several immediate effects on macro trading strategies. Forecasts had expected no change at 0.1%, making the actual release a shock. Rising costs are pushing interest rate expectations higher, prompting traders to consider increasing local bond yields. This also affects interest rate differentials, which are important to watch when setting medium-term cross-rate exposures. In the currency markets, EUR/USD fell to about 1.1130 this week. This decline occurred even though US consumer sentiment data was weak. The dollar’s strength is driven more by rising inflation expectations in the US than by weak economic data. Euros and Sterling were both affected, with GBP/USD hitting around 1.3250. This decline reflects both repositioning and adjustments in implied rates due to the increased US inflation expectations. Inflation breakevens and short-end swap curves have steepened in the US, giving dollar bulls more room in the short term. Gold’s drop below the $3,200 mark brings attention back to metal investments. The earlier rise was mainly due to hedge demand during geopolitical tensions, which have now eased. The stronger dollar and lower demand for safe-haven assets created opportunities for profit-taking in gold. The potential for its largest weekly drop this year suggests that some trading strategies may be shifting back to net short or flat positions. When volatility and dollar strength occur together, metals become less attractive for both protection and speculative investing. On the other hand, Ethereum’s rise above $2,500 is supported by key network upgrades. The increasing EIP-7702 authorizations after the Pectra upgrade indicate growing adoption and interest from developers. This momentum appears stable, grounded in actual user engagement, as shown by the rise in integrated wallets and decentralized applications. Such developments can strengthen pricing models for smart contract platforms. We will continue to monitor gas fee structures and validator metrics for signs of overextension. Trump’s trade agreements from his May 2025 Middle East visit have prompted optimism about increased US technology exports and better bilateral trade relations. Defense exports were a significant part of these discussions. Geopolitically, these deals may change supply chains for defense-related manufacturers and certain tech companies. While these changes are challenging to price immediately, they may impact sector-specific equity derivatives before influencing broader market valuations. As always, trading foreign exchange with leverage is risky, especially during weeks marked by data surprises and sharp price adjustments. It is crucial to assess risk carefully during periods of dollar strength, especially when this is driven by changing inflation expectations. We recommend reevaluating exposure levels, particularly with currency pairs that may face significant shocks, and adjusting stop-loss positions as needed. Create your live VT Markets account and start trading now.

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