Dollar Weakens as Fed Tilt Deepens; Gold Shines on Policy Shift

Key Takeaways:

*The U.S. Dollar extended losses as dovish Fed rhetoric and cooling data reinforced expectations for multiple rate cuts ahead.

*With policy uncertainty deepening and real yields slipping, the bias remains tilted in gold’s favor while the dollar stays under pressure.

Market Summary: 

The U.S. Dollar extended its decline this week as investors digested a potent mix of dovish Federal Reserve commentary, softening domestic indicators, and renewed geopolitical unease. Fed Chair Jerome Powell’s acknowledgment of a “notably softer labor market,” coupled with Governor Stephen Miran’s warning of “more downside risk than a week ago,” has anchored market expectations for at least two rate cuts before year-end. The latest Fed Beige Book echoed this cautious tone, describing economic activity as having “changed little,” while several districts reported weaker hiring conditions and moderating price pressures reinforcing the case for a policy pivot.

Markets have swiftly repriced rate expectations, with fed funds futures now fully pricing a September cut and assigning roughly a 70% probability to another move in December. This dovish repricing has weighed heavily on U.S. Treasury yields, with the 10-year note falling below 4.2% for the first time since May. The Dollar Index (DXY) slipped, extending its third consecutive weekly decline, as traders rotate toward higher-yielding and commodity-linked currencies. Meanwhile, recent U.S. data including sluggish retail sales and easing CPI has lent further support to the view that inflation momentum is fading, diminishing the appeal of the greenback as a yield play.

Gold, on the other hand, has emerged as the clear beneficiary of this shifting policy narrative. The combination of a weaker dollar, falling yields, and persistent geopolitical risk has driven bullion marking their strongest weekly performance in over a month. Investors are once again turning to gold as both a hedge against policy uncertainty and a safe haven amid the growing political volatility in Washington and escalating trade rhetoric from former President Trump. ETF inflows have picked up notably, signaling renewed institutional interest, while physical demand from Asia particularly China and India remains robust as central banks continue diversifying away from dollar reserves.

Looking ahead, the interplay between Fed policy expectations and market risk sentiment will remain central to gold’s trajectory. Should the Fed confirm a policy easing path in upcoming communications, gold may extend its rally toward new record highs, particularly if U.S. yields remain anchored and the dollar fails to regain footing. Conversely, any signs of stronger U.S. data or hawkish Fed resistance could prompt a short-term pullback, though the broader bias remains firmly underpinned by macro uncertainty and declining real yields.

Technical Analysis

DOLLAR_INDX, H4:

The U.S. Dollar Index (DXY) remains under pressure, extending its recent pullback as sellers retain control below the 98.80 resistance zone. The broader structure has shifted cautiously bearish following a clean break beneath the ascending trendline support, with price action now capped by the 50- and 100-period moving averages both flattening and tilting lower, signaling fading bullish momentum. Immediate support lies near 98.15, where buyers previously emerged to slow the decline.

On the momentum front, the RSI hovers near 50 after rebounding from oversold conditions, reflecting early but unconvincing attempts at stabilization. Meanwhile, the MACD histogram has turned slightly positive, suggesting a mild easing of bearish pressure though a firm crossover confirmation is still lacking.

Overall, the technical bias remains cautiously bearish while DXY trades below 98.80. A sustained move above this level could trigger a corrective bounce toward 99.55, but failure to reclaim it would keep the dollar vulnerable to further downside toward 97.50–97.00 amid ongoing signs of weakening momentum.

Resistance level: 98.80, 99.55

Support level: 98.15, 97.50

XAUUSD, H4

Gold continues to trade firmly within its established uptrend, holding above the $4,220 level after a brief pullback from recent highs near $4,375. The broader bullish structure remains intact, with price action supported by the ascending trendline and key moving averages sloping upward shows a clear indication that buyers remain in control. 

On the momentum side, the RSI hovers around 67, suggesting the market remains in bullish territory but approaching overbought conditions, hinting at potential short-term consolidation. Meanwhile, the MACD shows a renewed bullish crossover above the signal line, signaling that upward momentum may resume following the recent correction phase.

Overall, the technical bias remains decisively bullish as long as gold holds above the $4,400 handle. A break above $4,455 could open the door toward the next Fibonacci extension near $4,700, while a failure to maintain above $4,400 would expose gold to a deeper pullback toward $4,295 level that coincides with trendline support within the ongoing rally structure.

Resistance level: 4380.00, 4455.00

Support level: 4295.00, 4200.00