Gold (XAU/USD) dropped 0.79% on Tuesday, marking its fifth consecutive day of losses, as fading expectations for a larger Federal Reserve (Fed) rate cut weighed on investors' sentiment.
Gold stabilized near $2,620 on Tuesday, hovering at its lowest point in over two weeks, pressured by the strengthing US dollar (USD).
The US Dollar Index (DXY) remains near the seven-week high reached last Friday as expectations for a large Fed rate cut in November have faded. Additionally, reports of a potential ceasefire between Lebanon's Hezbollah and Israel are adding downward pressure on safe-haven gold. The dip is also linked to technical selling following Tuesday's break below the $2,630 support, the lower boundary of a short-term trading range.
The CME Group's (NASDAQ:CME) FedWatch Tool shows that investors are currently pricing in an 87% probability of a 25-basis-point (bps) rate cut by the Fed at the November meeting and overall 50 bps reductions by the year-end. On Tuesday, New York Fed President John Williams noted that it would be appropriate to gradually lower interest rates over time. He also emphasized that September's 50-bps cut should now serve as a guide for future policy actions.
XAU/USD was essentially unchanged during the Asian trading hours. Today, the main event is FOMC Minutes at 6:00 p.m. UTC. While the Fed's rate decision is already known, the minutes could spark volatility if the reasoning behind the decision contains surprises. If market participants perceive today's FOMC minutes as dovish, XAU/USD will return towards the key resistance level at $2,640. Conversely, if the minutes reveal a hawkish stance among Fed policymakers, XAU/USD might drop towards $2,590.
"Spot gold is expected to retest support at $2,603 per ounce, as it has briefly pierced below support at $2,612", said Reuters analyst Wang Tao.
Fed's Less Dovish Stance and Eurozone Economic Slowdown Pressure Euro
The euro (EUR/USD) failed to break above the important 1.10000 level on Tuesday but still managed to gain 0.05% against the US dollar (USD).
EUR/USD seems to have stabilised in the range of 1.09500–1.10000 as the market lacks a fundamental catalyst for the next major move. Markets continue to assess the outlook for further rate cuts by the Federal Reserve (Fed) and the European Central Bank (ECB), with worries about the brewing conflict in the Middle East and the slowing Chinese economy still weighing on the market sentiment. In response to a strong jobs report and hawkish comments by Fed Chair Jerome Powell, traders have shifted their expectations and currently price in just over 120 basis points (bps) worth of rate cuts by the end of July 2025. It helped pull the US Dollar Index (DXY) up towards a seven-week high and pushed EUR/USD lower.
John Williams, the President of the New York Fed, said yesterday that he didn't consider the September move "as the rule of how we act in the future", meaning that a 50-bps rate cut was an exception and that the cutting pace will slow down in future.
Additionally, recent economic data from the eurozone revealed signs of slowing growth, making it more likely that the ECB will cut rates by 25 bps again at next week's monetary policy meeting. Yannis Stournaras, ECB policymaker, told the Financial Times in an interview that he was backing two interest rate cuts this year and expects further easing in 2025 as inflation continues to decrease.
EUR/USD was falling during the Asian and early European trading sessions. Today, traders will seek trading signals from the FOMC Meeting Minutes for September, when officials almost unanimously agreed to cut rates by 50 bps. The minutes will be released at 6:00 p.m. UTC. Any hawkish details will support the greenback but are unlikely to push EUR/USD below 1.09250 as the level is protected by the 100-day moving average. At the same time, the market may simply ignore the dovish stance as it is more focused on the most recent US economic data. Big investors will likely refrain from placing large orders today as they wait for the release of the US Consumer Price Index report tomorrow.
Japanese Yen Grows Ahead of FOMC Minutes
USD/JPY has been moving sideways within a range of 147.500–149.000, gaining 0.01%.
This week, the US economic calendar is relatively quiet after Friday's strong employment report. Better-than-expected data strengthened the US dollar (USD) and lowered market expectations for sizeable interest rate cuts. Today, investors can review the September Federal Reserve (Fed) monetary policy meeting minutes. Almost all policymakers agreed on a 50-basis-point (bps) reduction at the previous meeting. Despite this, robust nonfarm payroll data caused markets to change their expectations for the US interest rate path. According to the CME FedWatch Tool, market participants expect a 25-bps cut with an 85% chance and a small chance of the Fed keeping rates unchanged.
The Japanese yen (JPY) has been volatile since the recent comments by Japan's newly appointed Prime Minister Shigeru Ishiba, known for criticising easy monetary policies. Ishiba's comments that the country is not prepared for further interest rate hikes have surprised markets. Ishiba has scheduled a snap election for parliament's lower house for 27 October, ahead of the Bank of Japan's October monetary policy meeting (BOJ) and next month's US presidential election.
During Asian and early European trading hours, USD/JPY has been showing bullish momentum, aiming to retest its recent high of 149.000. Today, the market will be watching the release of the FOMC Meeting Minutes at 6:00 p.m. UTC today. This event is expected to provide further insight into the central bank's rate-cut policy. Also, Thursday's US Consumer Price Index report will be the most significant economic release of the week. US inflation figures and upcoming corporate earnings reports will play a crucial role in shaping the future direction of the US economy.