Gold prices edged lower on Wednesday as a U.S.-Japan trade agreement announced by U.S. President Donald Trump lifted investor risk appetite, while a firmer dollar and higher Treasury yields added further pressure.

Boosted by a Japan-U.S. trade deal, the Nikkei stock index is expected to stay afloat above the 40,000 threshold at least for a while

Carmakers led the rally in Japan, where the Nikkei Stock Average surged 3.5% to its highest level in a year.

Currency traders focused on Wednesday on the yen, which see-sawed as they weighed speculation about the future of Japanese Prime Minister Shigeru Ishiba against U.S. President Donald Trump's announcement of a trade deal with Japan.

Japan and Europe are two of the U.S.’s largest trading partners and now that the markets have some certainty around trade, it’s back to “risk-on” for investors, according to Jim Reid’s team at Deutsche Bank.

While the announcement was cause for optimism ahead of Aug. 1, analysts remained concerned about the steep tariffs still looming for key trading partners such as Brazil and the EU.

The U.S. dollar strengthened against the Swiss franc and euro but weakened versus the yen on Wednesday as positive sentiment from a new U.S. trade deal was offset by political uncertainty surrounding Japanese Prime Minister Shigeru Ishiba's future.

KOCHI: Japan’s trade agreement with the United States is a “very big progress” that reduces uncertainty over the economic outlook, Bank of Japan Deputy Governor Shinichi Uchida said on Wednesday.

Deal-signing at the German cloud computing and software giant SAP turned cautious in the second quarter, CFO Dominik Asam told CNBC.

Gold prices fell on Wednesday as a U.S.-Japan trade deal announced by U.S. President Donald Trump lifted risk appetite, while higher Treasury yields added further pressure.

Futures fell on weaker safe-haven demand, driven by progress on U.S. trade deals.