Gold Holds Steady as the US Dollar Strengthens
Gold (XAU/USD) traded sideways last week, fluctuating between $2,720 and $2,750. Robust US economic data strengthened the US dollar (USD) and Treasury yields, limiting XAU/USD gains.
The US Dollar Index (DXY) has surged by 3.6% towards 104.49 in October—the biggest monthly gain since April 2022. This rise follows a rally in Treasury yields fueled by indicators of a resilient US economy and growing bets on Donald Trump winning the presidential election on 5 November. Also, the market expects the Federal Reserve (Fed) to proceed with a more cautious path for rate cuts, likely favouring smaller 25-basis-point (bps) reductions. Politically, market odds increasingly favour Trump returning to the White House, driving the US dollar and Treasury yields higher due to anticipated inflationary policies like higher tariffs and lower taxes.
XAU/USD losses remain limited due to safe-haven demand fueled by ongoing Middle East tensions and uncertainties surrounding the upcoming US election. However, on Saturday, Iran signalled it would refrain from retaliating against Israeli strikes on its military targets if a ceasefire agreement is reached in the Gaza Strip and Lebanon. If countries agree on a ceasefire, XAU/USD may face reduced safe-haven demand and increased downward pressure.
XAU/USD fell during the Asian trading hours. Today's trading session will likely be quiet as the economic calendar features no major news releases. The key levels to watch are $2,720 and $2,750.
Euro Drops to a Three-Month Low Amid Diverging Central Banks' Policies
The euro (EUR/USD) lost 0.41% against the US dollar (USD) on Friday after a series of better-than-expected US macroeconomic reports pushed the greenback higher.
In September, the US Commerce Department reported a 0.5% increase in non-defense capital goods orders (excluding aircraft). This key indicator of business investment exceeded economists' expectations of a 0.1% rise. Additionally, the University of Michigan's Consumer Sentiment Index climbed to 70.5 in October, surpassing the forecast of 69. Notably, consumer expectations for inflation over the next year decreased to 2.7%, aligning with September's final reading. EUR/USD has now been falling for four consecutive weeks as positive US economic data has lowered expectations about the size and speed of the Federal Reserve's (Fed) rate cuts and lifted US Treasury yields.
"We had a massive recalibration in economic expectations for the US, and that process seems to have largely run its course; the Fed's policy trajectory looks much more reasonable, and interest rate differentials between the US and other major economies are stabilizing here", said Karl Schamotta, chief market strategist at Corpay in Toronto.
Meanwhile, the eurozone economy continues to struggle with producer prices falling amid low consumer confidence and weak demand. Last week, the European Central Bank (ECB) cut interest rates for the third time this year, and four sources close to the decision told Reuters that a fourth cut would likely be in December unless data turned around in the coming weeks. Although some ECB officials tried to ease speculation about rate cuts, investors see a 40% chance that its next move in December will be a 50-basis-point (bps) reduction, twice the size of previous cuts.
EUR/USD was falling during the Asian and early European trading sessions. Today's macroeconomic calendar doesn't feature prominent events, so the established bearish trend might continue. Bears are now targeting 1.07760 and 1.07600.
Traders Await Economic Data to Define the Pound Trend
On Friday, the British pound (GBP/USD) declined by 0.12%, losing 0.7% over the week as the US economic data released last week strengthened the US dollar (USD).
The Department of Commerce announced that orders for non-defence capital goods—a closely monitored indicator of business spending plans— increased by 0.5% in the previous month, following a 0.3% increase in August. This figure exceeded the forecast of economists surveyed by Reuters, who had anticipated a rise of 0.1%. Meanwhile, the University of Michigan report revealed that consumer sentiment in October rose from 70.1 towards 70.5, surpassing the expected 69. Additionally, the one-year inflation outlook decreased towards 2.7% from the preliminary reading of 2.9%, aligning with the final result for September.
This week, investors will focus on Thursday's US PCE Price Index and Friday's US nonfarm payroll data.
"Clearly, payroll data is a crucial variable, and it remains an open question whether September's figure was an unusual move or a statistical anomaly. The next week's report will help clarify this, but in reality, we should take it with a grain of salt," said Karl Schamotta, Chief Market Strategist at Corpay, based in Toronto.
GBP/USD moves sideways during Asian and early European trading hours. Today, no major events can influence the pair, so it may continue moving within the established trend.