Fed Policy Uncertainty Drives Dollar Decline and Gold Volatility

Key Takeaways:

*Markets price roughly 62–65% probability of a December rate cut, reflecting divided Fed sentiment between easing advocates and inflation hawks.

*Softer U.S. labor market data and rising expectations of Fed easing give gold near-term support.

Market Summary:

The U.S. Dollar continued to face selling pressure as investors shifted attention from the resolution of the 41 day government shutdown to underlying economic vulnerabilities. The latest ADP report highlighted private employers shedding an average of 11,250 jobs per week in the latter half of October, signaling a tangible softening in the labor market. This reinforced expectations for a December Federal Reserve rate cut, now priced at roughly 62–65%, while the Fed remains internally divided between policymakers advocating deeper easing and those wary of inflation lingering near 3%.

While the Senate’s passage of the shutdown-ending bill initially boosted risk sentiment, it also reopened the flow of backlogged economic data including employment, retail sales, and inflation that could expose further cracks in the economy. Investors are increasingly weighing slower growth, mounting public debt, and Fed policy uncertainty, all of which are eroding the dollar’s yield and growth advantage. In the near term, absent upside surprises from incoming data or hawkish Fed commentary, the greenback appears vulnerable against major currencies, particularly as global risk appetite favors growth-sensitive assets over traditional safe havens.

Gold has been navigating a complex and conflicted backdrop. Softer U.S. labor market data and rising expectations of Fed easing have provided near-term support, offering bullion a partial hedge against policy uncertainty. However, the resolution of the government shutdown has revived risk-on sentiment, prompting capital flows into higher-yielding and growth-sensitive assets, which has curtailed gold’s safe-haven demand. The Cleveland Fed’s recent Survey of Firms’ Inflation Expectations showed slight moderation, tempering urgency around inflation-hedge buying, though any unexpected rise in inflation or geopolitical tensions could reignite demand for the metal.

In the near term, gold remains caught between dovish Fed expectations and stronger global risk appetite. Its immediate trajectory will hinge on whether U.S. economic data continues to disappoint, supporting bullish positioning or whether risk-on dynamics dominate, weighing on the metal. While the medium-term outlook remains constructive, particularly if inflation or data surprises tilt in gold’s favor, near-term price action is likely to remain volatile as traders navigate the tension between easing expectations and risk sentiment.

Technical Analysis

Dollar Index, H4

The US Dollar Index (DXY) has pulled back from the psychological resistance zone near 100.25 after a sustained rally over the past few weeks. Despite the recent correction, the overall bullish structure remains intact, supported by an ascending trendline that has been respected since late September. The index is currently hovering around 99.45, showing signs of stabilization after testing this trendline as support.

From a technical standpoint, the RSI is hovering around 39, suggesting that bearish momentum has been building, though it’s approaching the oversold region, which could indicate a potential pause or rebound in the near term. The MACD continues to show a bearish crossover, with the signal line above the MACD line and histogram bars staying negative, reflecting short-term downward pressure.

In summary, DXY remains within a medium-term uptrend, but short-term momentum has weakened. The market’s next move will likely depend on whether the index can hold above its trendline support or succumbs to further bearish pressure.

Resistance Levels: 99.55, 100.25

Support Levels: 98.70, 98.10

Gold, H4

Gold (XAUUSD) has recently rebounded after a sharp correction from its double-top formation near the $4,370 region, a level that has acted as strong resistance. The double-top reversal pattern triggered a break below the ascending trendline, confirming short-term bearish momentum before prices found support around $3,840. Since then, gold has staged a solid recovery, currently hovering near $4,138, just below the resistance zone around $4,235.

Momentum indicators show mixed signals at this stage. The RSI is currently around 59, easing from overbought levels, suggesting that bullish momentum may be cooling but not yet reversing. The MACD has turned positive, with the histogram showing steady upward momentum, though the pace of buying pressure appears to be slowing. This indicates the potential for short-term consolidation or a minor pullback before any further advance.

In summary, gold remains in a recovery phase following a technical pullback, but the current resistance levels could limit immediate upside momentum. A decisive break above $4,235 would strengthen the bullish case, while a rejection from this zone might trigger a short-term retracement.

Resistance Levels:4235.00, 4365.00
Support Levels: 4040.00, 3920.00