US Dollar Forecast: Gold Prices Surge as Fed Rate Cut Expectations Weigh on Greenback

Dollar Edges Down Amid Risk Appetite; Gold Hits Record High

The U.S. Dollar Index (DXY) remained flat on Thursday, reflecting a similarly subdued trading session in the Euro. The greenback’s performance was restrained, with gold prices surging to record highs, which likely reduced safe-haven demand for the U.S. dollar. Despite a sharp rebound on Wednesday, the dollar’s upside momentum has been limited as market attention shifts to upcoming Federal Reserve speeches and U.S. economic data.

Swiss Franc Gains After Rate Cut

 

The Swiss franc strengthened on Thursday following the Swiss National Bank’s (SNB) decision to cut interest rates by 25 basis points, bringing it to 0.8492 against the dollar, up 0.14%. Analysts had anticipated a larger 50 bps cut, mirroring the Federal Reserve’s earlier move. SNB Chairman Thomas Jordan signaled the potential for further rate reductions, adding pressure to exporters as the franc continues to rise. The SNB’s conservative cut spurred moderate gains, while the market had priced in a 55% chance of a 25 bps reduction before the announcement.

Fed Officials in Focus

Traders are eagerly awaiting remarks from several key Federal Reserve policymakers, including Chair Jerome Powell, New York Fed President John Williams, and Boston Fed President Susan Collins. Their commentary is expected to provide crucial insights into the Fed’s future rate trajectory. With a heightened focus on employment over inflation, investors are also closely watching weekly U.S. jobless claims data, which has surprised on the downside, supporting a still robust labor market.

Global Sentiment Driven by Chinese Stimulus

Global markets were bolstered by optimism over China’s aggressive stimulus package, fueling risk-on sentiment across European and Asian stock markets. U.S. economic data, particularly the durable goods orders for August, further supported this optimism as orders remained stable, contrary to economists’ forecasts of a decline.

Gold Near Record High as Traders Expect Fed Rate Cuts

Gold (XAU/USD) continued its bullish climb, reaching near-record levels of $2,685.64 per ounce. Expectations for further U.S. interest rate cuts have driven up demand for non-yielding assets like gold. Traders are pricing in a 62% probability of a 50 bps rate cut by the Fed in November, as indicated by the CME FedWatch tool. Fed Chair Jerome Powell’s upcoming remarks are expected to shed light on the extent of future rate adjustments, which will further guide gold’s direction.

Market Forecast

In the short term, the U.S. dollar faces downside pressure as risk appetite grows, fueled by Chinese stimulus and expectations of additional rate cuts from the Federal Reserve. With Fed policymakers set to speak later in the day, the dollar could experience heightened volatility based on their tone. Gold is expected to maintain its upward momentum, with analysts predicting it could surpass $3,000 an ounce before year-end. Traders should watch Friday’s U.S. inflation data for further clues on the Fed’s monetary policy outlook.