US Dollar Forecast: Will Gold Surge Past $2,700 as Dollar Weakens Further?

Dollar Weakens as Rate Cut Bets Rise; Euro and Gold Gain

The U.S. Dollar Index (DXY) continued its decline for a second session on Wednesday, driven by mounting expectations of a substantial rate cut by the Federal Reserve in November. The dollar’s safe-haven appeal has also weakened as investors shift focus to gold, benefiting from increased demand amid economic uncertainty.

At 13:43 GMT, the U.S. Dollar Index is trading 100.352, up 0.003 or 0.00%. This is up from a multi-month low of 100.224.

Euro and Yuan Strengthen as China Stimulus Boosts Risk Appetite

The euro edged higher against the dollar, despite weaker-than-expected German economic data and concerns over the French budget. Investors are optimistic that China’s stimulus measures could positively impact European demand, particularly through Germany. The euro is trading at a 13-month high, up by 0.22% to 1.12036.

The yuan surged to its strongest level in 16 months, with the onshore yuan reaching 7.0012 per dollar and the offshore yuan briefly breaking the key psychological level of 7 per dollar. China’s aggressive stimulus package, including rate cuts and support for the stock market, has bolstered investor confidence in Chinese assets, further pressuring the U.S. dollar.

Christopher Wong, currency strategist at OCBC, suggested that the yuan’s momentum would likely be tied to China’s equity market performance, signaling that risk appetite in global markets remains strong.

Sterling Retreats While Gold Gains on Rate Cut Hopes

Sterling fell 0.06% to $1.3405 after reaching a 19-month high earlier in the session, supported by relatively milder expectations for Bank of England rate cuts compared to the Fed.

Gold prices remained steady after reaching an all-time high on Wednesday, driven by hopes for another large rate cut by the Fed. As a non-yielding asset, gold tends to benefit from lower interest rates. Han Tan, chief market analyst at Exinity Group, predicted that gold could hit $2,700 by the end of 2024, with the potential for further gains if the U.S. economy falters.

Investors are now pricing in a 59.1% chance of a 50-basis-point cut at the Fed’s upcoming meeting, an increase from 37% just a week ago, according to CME FedWatch.

Treasury Yields Rise as Focus Shifts to U.S. Economic Data

U.S. Treasury yields inched higher as investors evaluated recent economic data, particularly concerning consumer confidence and the housing market. On Tuesday, data revealed that U.S. consumer confidence fell to its lowest level in over three years, sparking concerns about the labor market’s health. Investors are also keeping an eye on U.S. inflation data and speeches by Federal Reserve officials, including Chair Jerome Powell, for further clues on monetary policy.

This week’s economic calendar includes durable goods orders, jobless claims, and the latest personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation. These data points are expected to guide market sentiment and influence the Fed’s decision-making ahead of its next policy meeting.

Market Forecast: Bearish for the Dollar, Bullish for Gold

Given the rising odds of another Fed rate cut and strong global risk appetite, the U.S. dollar faces short-term downward pressure. As investors pivot toward higher-yielding and non-yielding assets like gold and the yuan, the greenback could see further declines. Gold, on the other hand, appears poised for continued gains, with market sentiment suggesting a move toward $3,000 if economic conditions worsen and Fed rate cuts persist.