US Dollar Forecast: Gold Steady as Dollar Rises on Treasury Yields and Election Risks

U.S. Dollar Index Eyes Higher Gains as Treasury Yields Rise

The U.S. Dollar Index (DXY) advanced on Tuesday, holding above the 200-day moving average at 103.79, which has now become key support. Traders are watching for a potential breakout to 104.799, a level last reached in July. If momentum continues, the index could target 106.130. However, failure to hold the 200-day moving average could trigger a pullback towards the 103.144 pivot.

The dollar’s strength is primarily supported by rising U.S. Treasury yields and concerns over the Federal Reserve’s interest rate trajectory and the upcoming U.S. presidential election.

At 14:23 GMT, the U.S. Dollar Index is trading 104.054, up 0.092 or +0.09%.

Treasury Yields Drive Dollar Gains

U.S. Treasury yields have been a crucial driver behind the dollar’s recent rally. On Tuesday, the 10-year Treasury yield briefly touched 4.2%, its highest level since July, before settling near 4.17%. The 2-year yield was also stable at 4.02%.

The bond market’s rise comes as investors adjust their expectations for the Federal Reserve’s future rate cuts. Although the Fed cut rates by 50 basis points in September, traders now expect a slower pace of cuts. Markets are pricing in an 89% chance of a 25 basis point cut at the November meeting, with a reduced likelihood of another cut in December.

Yen, Euro, and Sterling Under Pressure

The stronger dollar continues to weigh on other major currencies. The yen was near a three-month low at 151.10 per dollar as the widening yield differential between U.S. and Japanese bonds pushed the yen lower. The euro traded at $1.0818, near its lowest level since August, with further downside risks tied to weak Eurozone economic data and dovish ECB policy. Sterling also remained under pressure at $1.3006.

Safe-Haven Demand Keeps Gold Elevated

Gold has held firm, trading near record highs despite the strong dollar. After hitting an all-time high of $2,740.37 on Monday, the metal remains buoyed by geopolitical tensions, election uncertainties, and expectations of further rate cuts. Gold has risen 32% year-to-date and remains a safe-haven asset, particularly attractive amid the U.S. election’s volatility.

Strong demand for bullion-backed ETFs has underpinned gold’s rally, with analysts expecting the metal to test $2,800 in the near term, even as yields and the dollar rise.

Market Forecast: Dollar Bulls Stay in Control

In the short term, the U.S. Dollar Index remains bullish. Rising Treasury yields, combined with expectations of cautious rate cuts by the Federal Reserve, are likely to keep the dollar supported. If the DXY breaks through 104.799, it could rally towards 106.130. However, a failure to hold current support may see a retracement to 103.144.

Traders will continue monitoring U.S. economic data and the election for further cues on the dollar’s next move.