Gold Drops for Third Straight Day as US Data Fuels Recession Fears
Octa | May 01, 2025 03:33AM ET
Gold Declines for the Third Day in a Row
The gold (XAU/USD) price fell by 0.87% on Wednesday, pressured by concerns over the US economic outlook.
A weaker-than-expected Gross Domestic Product (GDP) report for Q1 showed that the US economy had contracted by 0.3% instead of the expected 0.3% growth. The downturn was largely attributed to a more than 40% spike in imports, as businesses and consumers rushed to build inventories ahead. This happened due to anticipated tariff increases under Donald Trump's administration, highlighting the disruptive impact of ongoing trade tensions.
The ADP National Employment report also weighed on market sentiment. The data showed that private sector payrolls increased by just 62,000 in April, well below the estimates of 115,000. It marked the slowest pace of job creation since July 2024. The disappointing economic growth and soft labour market data have intensified fears of a potential recession. These concerns reinforce gold's role as a safe-haven asset, even as short-term price action remains volatile.
XAU/USD plunged by 1.63% during the Asian and early European trading sessions, hitting a low below $3,231. Today, the market will likely have to digest the announcement of the first tranche of deals that will reduce planned tariffs on some countries. In addition, US macroeconomic reports may add extra volatility. Traders should focus on the Jobless Claims figures at 12:30 p.m. UTC and ISM Manufacturing PMI data at 2:00 p.m. UTC.
Euro Continues Declining
On Wednesday, the euro (EUR/USD) lost 0.5% against the US dollar (USD) even though the eurozone Gross Domestic Product (GDP) Growth data exceeded the forecast, unlike the US GDP report.
A flash estimate showed that the eurozone economy grew by 1.2% year-on-year in Q1 2025, matching the previous quarter's pace and exceeding expectations of 1% growth. Among the eurozone's largest economies, Germany remains in recession, with the country's GDP contracting 0.2% year-on-year in Q1. Meanwhile, France and Italy showed modest growth of 0.8% and 0.6%, respectively. At the same time, US data disappointed investors, with GDP declining by 0.3% instead of the forecasted 0.3% growth.
"It's important to realise that a large chunk of the fall in GDP is due to the sharp increase in imports, which takes away from GDP growth", said Oliver Pursche, senior vice president and advisor at Wealthspire Advisors. "And that's probably due to the expectation of tariffs. So, if you were to normalise that, you end up with positive GDP growth for the quarter, but it certainly doesn't bode well for Q2".
EUR/USD fell slightly during the Asian and early European trading sessions. Today, traders should focus on two US reports: Jobless Claims at 12:30 p.m. UTC and ISM Manufacturing (PMI) at 2:00 p.m. UTC. Lower-than-expected figures could push EUR/USD down below 1.13000. Conversely, higher-than-expected results may push the pair higher towards 1.14300.
Yen Rises After Bank of Japan's Meeting
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The Japanese yen (USD/JPY) rose by 0.46% on Wednesday, extending gains from the 142.000 level.
At its May policy meeting, the Bank of Japan (BoJ) held its benchmark short-term interest rate steady as the market had expected. The interest rate is now at 0.5%, the highest since 2008. The unanimous decision reflects the central bank's cautious stance amid heightened global uncertainty, particularly surrounding the potential economic fallout from US President Trump's tariff plans. Ongoing trade negotiations between Tokyo and Washington seem to be a key variable that could shape future policy direction. Against this backdrop, the BoJ adopted a more dovish tone in its quarterly outlook. The bank lowered its gross domestic product (GDP) growth projection for 2025 towards 0.5%, down from the 1% forecast in January. It also changed the 2026 outlook to 0.7%, citing intensifying trade risks and rising policy uncertainty.
Additionally, the BoJ reduced its core inflation forecast, now expecting it to average 2.2% in 2025—down from 2.7%—with a further deceleration towards 1.7% in 2026 before gradually rising to 1.9% in 2027. Headline inflation is expected to remain close to 2% through the fiscal year ending March 2028. These projections underscore the central bank's cautious approach to policy normalisation, suggesting that further rate hikes will depend on domestic economic resilience and the evolving global trade environment.
USD/JPY rose during the Asian and early European trading sessions. Today, the Initial Jobs Claims report will be released at 12:30 p.m. UTC, potentially triggering volatility in the market. Key levels to watch are resistance at 144.000 and support at 143.000.
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