Gold Drops Further on Trade Deals OptimismGold (XAU/USD) hovered below $3,400 on Wednesday, declining by over 1%, as optimism about further trade deals between the US and key partners weighed on the metal’s safe-haven appeal.The US–Japan trade deal contributed to XAU/USD’s decline as it boosted risk appetite, reducing demand for safe-haven assets like gold. The EU is also progressing towards a trade agreement with Washington. The deal would impose a broad 15% tariff on EU goods entering the US, instead of a steeper 30% levy scheduled to take effect on 1 August. The tariff, which could also apply to cars, would mirror the framework of a similar US–Japan agreement.However, caution remained amid ongoing threats of 15% to 50% tariffs on countries such as South Korea and India, which are still negotiating deals. Traders are also awaiting clarity on negotiations with China, as US Treasury Secretary Bessent will meet Chinese officials next week. On the monetary policy front, markets are focused on next week’s Federal Reserve (Fed) meeting. Markets expect the Fed to keep interest rates unchanged, with potential cuts anticipated in October.Investor demand for gold has been strong recently, as US tariff threats have raised concerns about a potential slowdown in global economic growth. Geopolitical tensions, such as ongoing conflicts in the Middle East and Russia–Ukraine, continue to bolster gold’s safe-haven appeal. XAU/USD could remain in a consolidation phase until there is clarity on the tariffs front or a clearer dovish signal from the Fed. The key levels to watch are support at $3,360 and resistance at $3,440. A break above the resistance level could start a longer-term uptrend continuation. A decline below the support level could trigger a major sell-off, as investors may continue to cover their profits.Euro Rises on Trade-Talks ProgressThe euro (EUR/USD) traded within a tight range on Tuesday, closing just above the previous day’s high of 1.17600, up by 0.17%. The US–Japan trade deal bolstered risk-on sentiment, supporting the pair. The agreement reduced demand for the US dollar (USD), although eurozone economic softness limited the euro’s upward momentum.Markets closely monitor tariff negotiations. The EU and the US are progressing towards a trade agreement that could include a 15% US baseline tariff on EU goods and possible exemptions. This follows Washington’s trade deal with Tokyo, which lowered auto import tariffs and prevented the latter from imposing new levies on other goods. The countries agreed to establish lower tariffs in exchange for a $550 billion package of US–bound investment and loans. Global markets responded positively—risk assets rallied, and investors sold the US dollar."These trade frameworks agreed between the US and the major economies are definitely positive for risk sentiment", said Carol Kong, Currency Strategist at Commonwealth Bank of Australia.The US dollar further declined after US President Donald Trump referred to Federal Reserve (Fed) Chair Jerome Powell as a ’numbskull’ in his comments. Trump also signalled potential rate cuts, which stirred expectations of a dovish Fed shift. Meanwhile, Powell emphasised that ’We are well positioned to wait for greater clarity before considering policy stance adjustments’, signalling a cautious approach towards rate cuts amid tariff-driven inflation risks.The euro hovered near a high of 1.18300 hit earlier this month—the strongest level over three years. Traders should pay attention to 1.17600 support and 1.17800 resistance levels. Today’s key event is the European Central Bank (ECB) interest rate decision at 12:15 p.m. UTC. Markets expect the regulator to keep the interest rate unchanged at 2.15%. This expectation reflects concerns over the eurozone stagnation and tariff impacts. ECB President Christine Lagarde also noted that ’The economic outlook is clouded by exceptional uncertainty’ due to Trump’s trade policies.Japanese Yen Reaches Two-Week High on US–Japan Trade DealThe Japanese yen (USD/JPY) strengthened on Thursday, reaching a two-week high as optimism about the US–Japan trade deal supported demand for the currency.The two countries agreed to implement a 15% tariff on Japanese exports to the US, significantly lower than the 25% previously threatened by US President Donald Trump. This development came as a relief for Japanese exporters. Investors welcomed the breakthrough, which eased trade tensions between the two countries and improved risk sentiment in the market.On the domestic front, Japan’s private sector growth remained steady in July. A solid service sector performance helped offset weakness in manufacturing, which slipped into contraction over the same period.Despite the recent gains, the yen may face downward pressure due to rising political uncertainty in Japan. On Wednesday, Prime Minister Shigeru Ishiba denied reports that he had decided to resign. He pushed back against media reports and a source claim that he planned to step down due to his ruling coalition’s significant defeat in the upper house elections."In the near term, the yen will still face headwinds from ongoing political uncertainty. We still don’t know what Prime Minister Ishiba will do... so I think there is still some uncertainty with regard to the fiscal outlook in Japan and Bank of Japan policy", said Carol Kong, Currency Strategist at Commonwealth Bank of Australia.