US Dollar Forecast: DXY Eyes 103.766 Resistance While Gold Surges on Falling Yields

U.S. Dollar Index Eyes Key Resistance Amid Fed Speculation

The U.S. Dollar Index (DXY) is trading higher on Wednesday, approaching the August 8 minor top of 103.546. Breaking this level could drive the DXY to the 200-day moving average at 103.766, while support is seen at 103.144. A close below support would indicate near-term weakness.

The dollar is underpinned by uncertainty surrounding the U.S. presidential election and the Federal Reserve’s outlook, with Forex traders factoring in the possibility of rate cuts. Meanwhile, gold prices continue to rise, driven by lower Treasury yields and risk-off sentiment, despite the stronger dollar.

Pound Drops on Soft Inflation Data

The British pound briefly fell below $1.30 after weaker-than-expected inflation data from the U.K. raised expectations of aggressive rate cuts by the Bank of England (BoE). Inflation dropped to 1.7% in September, its lowest since April 2021, missing the 1.9% forecast. This fueled bets for a BoE rate cut in November and a potential second cut in December.

Sterling later recovered to $1.3018 but remains vulnerable, with ING’s FX strategist Francesco Pesole suggesting further downside for the pound below $1.30. The euro lost ground, while traders await Thursday’s European Central Bank (ECB) meeting, where a 25-basis-point rate cut is widely expected.

Dollar Firms Ahead of Fed Decision, Election Risks

The dollar remains firm, supported by expectations that the Federal Reserve will continue cutting rates. Traders have priced in a 92% chance of a 25-basis-point rate cut in November. Former President Donald Trump’s potential re-election is also seen as dollar-positive, adding another layer of support for the greenback. The euro remains near a 10-week low, trading at $1.0891, and the dollar rose to 149.37 yen.

Fed officials remain cautious about future rate cuts, with the Atlanta Fed’s Raphael Bostic hinting at only one rate cut for 2023, while San Francisco Fed’s Mary Daly forecast one or two cuts by 2024.

Gold Prices Hold Strong as Treasury Yields Fall

Gold prices extended gains, driven by lower bond yields and weaker equity markets. The 10-year Treasury yield fell to 4.008%, making non-yielding assets like gold more attractive. Analysts expect gold to approach record highs as geopolitical uncertainties, including U.S. election risks, continue to support safe-haven demand.

Market Forecast

The U.S. Dollar Index is set to test 103.766 in the near term, with support from expectations of Fed rate cuts and geopolitical risks. Gold remains poised for further gains as falling bond yields and election-related uncertainty drive demand, potentially pushing it to new record highs before year-end.