Dollar Gains While Gold Weakens as Oil Surge Revives Hawkish Fed Bets

Key Takeaways:

*The US dollar remains supported as renewed US-Iran conflict boosts safe-haven demand and strengthens expectations that the Federal Reserve may keep interest rates higher for longer.

*Surging oil prices have become the key market driver increasing concerns over another energy-driven inflation shock.

*Gold continues to weaken despite geopolitical tensions, as higher Treasury yields and a stronger US dollar outweigh its traditional safe-haven appeal.

Market Summary:

The US dollar remained broadly supported around the 101 level, extending gains as renewed military escalation between the United States and Iran reinforced safe-haven demand while simultaneously reviving concerns that another energy-driven inflation shock could delay the Federal Reserve’s easing cycle. Over the weekend, both countries exchanged fresh missile and drone strikes after Washington launched another wave of attacks targeting Iranian military infrastructure, prompting Tehran to retaliate against US facilities across the Gulf region and once again declare the Strait of Hormuz closed. Although US Central Command maintained that commercial shipping remains operational, vessel traffic through the strategic waterway fell to its lowest level in roughly five weeks, keeping markets focused on potential supply disruptions, rising energy prices and the inflationary risks stemming from prolonged geopolitical tensions.

The renewed surge in crude oil prices has become the primary catalyst supporting the dollar while simultaneously weighing on gold. Brent crude climbed back toward $78–79 per barrel, with WTI rising above $73, reinforcing expectations that higher energy costs could reignite inflation after months of gradual moderation. As a result, traders have increased bets that the Federal Reserve may need to maintain a restrictive policy stance for longer, with Fed funds futures now implying a 52.1% probability of at least two additional rate hikes by December, up from 47.6% at the end of last week. The Federal Reserve’s latest Monetary Policy Report also warned that inflation had “stepped up further this spring,” citing tariffs, war-related energy costs and continued AI investment as key drivers of persistent price pressures. Rising Treasury yields and a firmer US dollar have therefore outweighed gold’s traditional safe-haven appeal, pushing bullion lower toward the $4,060–4,080 per ounce region despite escalating geopolitical risks.

Gold’s weakness highlights the unusual market dynamic currently dominating precious metals. While geopolitical conflicts would normally increase demand for safe-haven assets, investors have instead focused on the inflationary consequences of higher oil prices and the prospect of higher-for-longer US interest rates. With approximately 20% of global seaborne crude oil passing through the Strait of Hormuz, continued uncertainty surrounding the waterway has increased expectations that energy prices could remain elevated, reinforcing the Fed’s cautious stance. The resulting combination of higher real yields, stronger dollar demand and tightening monetary policy expectations has significantly reduced the attractiveness of non-yielding assets such as gold.

Looking ahead, markets will closely monitor this week’s US CPI and PPI inflation reports, alongside Federal Reserve Chair Kevin Warsh’s first congressional testimony, for further clues on the interest-rate outlook. Stronger-than-expected inflation data could reinforce expectations for additional Fed tightening, lifting Treasury yields and the US dollar while placing further downward pressure on gold. Conversely, softer inflation figures could weaken the dollar, ease rate-hike expectations and allow bullion to stabilise above the key $4,000 psychological support level. Until inflation shows clearer signs of easing or geopolitical tensions begin to subside, movements in the US dollar, Treasury yields and Middle East developments are expected to remain the primary drivers for both currencies and precious metals.

Technical Analysis 

Dollar Index, H4: 

The U.S. Dollar Index (DXY) remains constructive, rebounding from its ascending trendline and successfully reclaiming the 101.10 resistance level. The index continues to respect its sequence of higher lows, suggesting the broader uptrend remains intact despite the recent period of consolidation. Price is now attempting to build momentum above 101.10, with a sustained move higher likely to encourage another test of the recent peak near 101.85.

Momentum indicators have turned more supportive of the bullish outlook. The Relative Strength Index (RSI) has climbed back above the neutral 50 level and crossed above its moving average, indicating that buying momentum is strengthening without entering overbought territory. Meanwhile, the MACD has completed a bullish crossover just above the zero line, while the histogram has turned positive, signaling that upside momentum is gradually improving and reinforcing the recent rebound. Overall, the short-term outlook remains moderately bullish as DXY continues to trade above its ascending trendline with improving momentum indicators. 

Resistance Levels: 101.10, 101.85

Support Levels: 100.10, 99.50

Gold, H4: 

Gold remains under pressure with price continuing to trade below the 4,125 resistance level after failing to sustain its recent recovery. The metal has been consolidating within a broad range between 4,030 and 4,125, suggesting that neither buyers nor sellers have established clear control in the near term. Although the 3,955 support has successfully contained recent declines, the series of lower highs since early July indicates that the broader bias remains cautiously bearish unless price can reclaim higher resistance levels.

Momentum indicators continue to favor a softer outlook. The Relative Strength Index (RSI) has slipped to around 42, falling below both the neutral 50 level and its moving average, indicating that bearish momentum is gradually strengthening. Meanwhile, the MACD remains below the zero line, with the MACD line crossing beneath the signal line and the histogram turning negative again, suggesting downside momentum is re-emerging after the recent consolidation. Overall, the short-term outlook remains cautiously bearish as gold struggles to regain bullish momentum while momentum indicators continue to weaken. 

Resistance Levels: 4125.00, 4205.00

Support Levels: 4030.00, 3955.00