Fed Risks Weigh on Dollar, Lift Gold

Key Takeaways:

*The U.S. dollar weakened despite strong Q2 GDP and consumer spending, as political interference fears overshadowed solid data.

*Treasury yields drifted lower, while shutdown risks threaten to delay key economic data, adding to dollar fragility.

*Gold benefited from safe-haven flows, buoyed by NATO-Russia tensions and easing real yields.

Market Summary:

The U.S. dollar has extended its slide, undermined by a mix of political uncertainty and conflicting economic signals. While the upwardly revised Q2 GDP print at 3.8% and resilient consumer spending initially pointed to stronger growth, the greenback’s momentum quickly stalled as markets turned their focus to the Fed’s independence. President Trump’s public clashes with Chair Powell including “YOU’RE FIRED!” Post and legal moves targeting Governor Lisa Cook have heightened fears of political interference in monetary policy. This narrative has dovetailed with labor-market concerns, prompting some Fed officials to float the case for proactive rate cuts even as PCE inflation holds at 2.9%.

Treasury yields have edged lower in response, eroding the dollar’s yield advantage and reinforcing downside risks. The prospect of a government shutdown has only added to the fragility of sentiment, raising the possibility that critical data such as nonfarm payrolls could be delayed and deprive markets of policy cues. Against this backdrop, fiscal uncertainty and eroding trust in Fed autonomy are capping the dollar’s upside, leaving its near-term trajectory skewed lower despite otherwise solid macro underpinnings.

Gold has seized on these dynamics, steadily climbing as investors seek safety against both geopolitical flashpoints and monetary-policy uncertainty. Reports of escalating NATO-Russia tensions, with European diplomats warning of potential interceptions of Russian jets, have injected a geopolitical risk premium into bullion. Moscow’s threat that such an act would mark “the start of war” rattled markets and underscored gold’s role as a defensive hedge. Simultaneously, the prospect of a softer Fed stance amid political interference and labor weakness has pushed real yields lower, reducing the opportunity cost of holding bullion.

The interplay between the two assets remains finely balanced. A stronger run of U.S. data could revive hawkish Fed pricing, offering support to the dollar and tempering gold’s advance. Conversely, deeper signs of global economic strain or fresh political shocks could sustain bullion demand while keeping pressure on the greenback. For now, gold remains bid as both a geopolitical shield and a hedge against U.S. policy error, while the dollar struggles to regain footing in the face of heightened uncertainty.

Technical Analysis

DXY, H4

The dollar index has broken above its descending trendline, confirming a shift in near-term momentum. However, the latest candles show a pullback after testing resistance near 98.75, with price now hovering just above 98.10 support and the 20-period moving average. A sustained hold above this zone could keep the bias tilted upward toward 99.60 and possibly 100.25. On the downside, a failure to defend 98.10 may drag the index back toward 97.55.

Momentum indicators are showing a cooling phase: RSI has eased from overbought levels from 66 to 54, suggesting waning bullish pressure, while the MACD remains in positive territory but shows a narrowing spread, pointing to reduced upside momentum.

Overall, the breakout favors a constructive bias, but near-term consolidation or a retest of broken resistance-turned-support is possible before a clearer continuation higher.

Resistance levels: 98.10, 98.75
Support levels: 97.55, 97.00

XAUUSD, H4

Gold (XAUUSD) remains in a consolidation phase after its strong rally earlier this month, with the price now hovering around the 3,770 level. The chart shows a rising wedge pattern forming, which often signals potential exhaustion of bullish momentum. At the same time, bearish divergences are visible that the RSI has been making lower highs while price makes higher highs, and the MACD is also showing a similar divergence, suggesting weakening momentum.

If downside pressure develops, the first support to watch is at 3,730 which aligns with the 20-period MA, followed by 3,675 and 3,635, which aligns with a deeper Fibonacci retracement zone. On the upside, sustained strength above 3,780 would invalidate the divergence and open the way to 3,820 at the 1.272 Fib extension.

Overall, while gold remains in a broader uptrend, caution is warranted as momentum indicators point to potential cooling. A decisive break of support could confirm a corrective move, while holding above 3,730 keeps the bulls in control.

Resistance levels: 3820.00, 3995.00
Support levels: 3730.00, 3675.00