Will DXY Strength Pressure Gold Further? Trump’s Win and Fed Moves Shift Market Sentiment

U.S. Dollar Ends Volatile Week Higher Following Trump Victory and Fed Rate Cut

The U.S. Dollar Index (DXY) closed the week up 0.61% at 104.951 after reaching a high of 105.441 and a low of 103.373, marking a strong finish amid fresh speculation around Trump’s economic policies and the Federal Reserve’s rate cut. With markets anticipating Trump’s potential pro-growth and inflationary policies—such as increased tariffs and deregulation—the dollar surged as traders recalibrated their inflation outlooks. The dollar’s gains reflect traders’ positioning for inflationary pressures that could affect the Fed’s future rate path.

Trump Policies Spark Dollar Momentum

The dollar’s rally mid-week was spurred by Trump’s election, as traders reacted to the possibility of tax cuts, deregulation, and tariffs aimed at boosting growth but potentially driving inflation. However, some profit-taking set in, moderating the rally and closing DXY just below its weekly peak. Analysts warn that significant uncertainty persists over how much of Trump’s campaign rhetoric will translate into policy, leaving markets to speculate. Marc Chandler, chief market strategist at Bannockburn Global Forex, notes that “considerable volatility” reflects uncertainty as traders await details on Trump’s policy direction.

Federal Reserve Rate Cut Complicates Outlook

On Thursday, the Fed lowered rates by 25 basis points to a target range of 4.50%-4.75%, its second consecutive cut. Chair Jerome Powell reinforced a flexible stance, indicating that future rate decisions will depend on evolving economic data and inflationary signals, rather than a preset path.

The CME Group’s FedWatch Tool shows a 65% probability of another rate cut in December, down from 83% last week, as traders factor in potential inflation under Trump’s administration. Powell emphasized that the election result would not alter immediate policy but acknowledged the shifting inflation landscape.

Gold Tumbles While Posting Steepest Weekly Decline in Five Months

Gold prices faced a turbulent week as multiple economic factors weighed heavily on the metal’s performance, resulting in the steepest weekly decline in over five months. The main drivers behind this movement were a surging U.S. dollar, rising Treasury yields, and cautious signals from the Federal Reserve, all of which contributed to a bearish stance among traders.

Global Currencies Feel the Pressure

The dollar’s strength put pressure on other currencies, notably pushing the euro down 1.05% to $1.0717, amid Germany’s political uncertainty following the collapse of Chancellor Olaf Scholz’s coalition. While the yen gained slightly, analysts expect the rate differential between the U.S. and Japan could weaken the yen, potentially prompting a Bank of Japan rate hike. Meanwhile, the Chinese yuan declined as Beijing’s $1.4 trillion debt stabilization plan disappointed markets, impacting the Australian dollar, a common yuan proxy.

Market Forecast: Dollar Positioned for Gains, with Volatility Expected

Looking forward, the dollar’s outlook remains bullish, supported by the Fed’s cautious stance and the anticipation of inflationary policies from Trump’s administration.

However, upcoming U.S. consumer price data, due on Wednesday, will likely shape Fed expectations ahead of its December meeting. While the dollar remains on strong footing, profit-taking and policy uncertainties suggest potential for short-term volatility as markets await clearer signals from both the Fed and the Trump administration’s policy framework.