Fed Caution Lifts Dollar, Puts Pressure on Gold

Key Takeaways:

*Fed officials signal caution, warning against rapid rate cuts.

*Strong U.S. housing data and GDP outlook support the dollar.

*Gold retreats as yields rise but safe-haven demand remains.

Market Summary:

The U.S. Dollar and Gold are trading in opposing directions as investors weigh the Federal Reserve’s cautious messaging against ongoing macro and geopolitical uncertainty. The greenback has found renewed support after Chair Jerome Powell and Chicago Fed President Austan Goolsbee warned against “overly frontloading” rate cuts, signaling that inflation risks remain too elevated for an aggressive easing cycle. This pushback has tempered last week’s dovish momentum, reminding markets that the Fed remains firmly data-dependent.

Stronger-than-expected U.S. data has reinforced dollar strength. New home sales in August surged to their highest level since January 2022, while GDP nowcasts suggest solid Q3 growth despite clear signs of labor market cooling. These figures have given the Fed room to remain patient, keeping Treasury yields supported and lifting demand for the dollar. However, political pressure from Treasury Secretary Scott Bessent who argued rates have been “too high for too long” underscores the delicate balance the Fed faces between economic resilience and growing calls for faster easing.

Gold, meanwhile, has retreated from record highs as a stronger dollar and firmer yields reduce its appeal. The recalibration of Fed expectations has raised the opportunity cost of holding bullion, triggering a period of consolidation after its recent surge. Yet the broader bullish narrative remains intact. Geopolitical tensions—ranging from Ukrainian drone strikes on Russian refineries to looming UN sanctions on Iran—continue to underpin safe-haven demand, while sticky inflation and robust ETF inflows support gold’s role as both a hedge and a strategic asset.

Looking ahead, the interplay between U.S. data and Fed policy will remain the dominant driver for both assets. A further slowdown in the labor market could rekindle aggressive easing bets, weakening the dollar while boosting gold. Conversely, resilient growth and persistent inflation would strengthen the case for a slower easing path, keeping the dollar supported and capping gold’s near-term upside.

Technical Analysis

DXY, H4

The U.S. Dollar Index (DXY) has staged a strong rebound from the 97.00 support area and is now challenging the key resistance level at 98.10. This zone has acted as an important pivot in recent weeks, and price action here will likely determine the next directional move. A sustained breakout above 98.10 could open the door for further upside toward 98.75 and eventually 99.60. On the other hand, a rejection at this level may leave the index vulnerable to renewed selling pressure, with downside targets at 97.50 and 97.00.

Momentum indicators are tilting in favor of the bulls but show some caution. The RSI currently sits near 64, reflecting improving bullish momentum, though it is edging toward overbought territory where rallies have previously struggled. Meanwhile, the MACD has turned positive, supporting the short-term upward bias, but its slope suggests momentum remains moderate rather than strongly trending.

Overall, DXY is at a decisive juncture. A clean break above 98.10 would confirm bullish continuation, while failure to clear this resistance could trigger a pullback back into the 97.50–97.00 support zone.

Resistance levels: 97.50, 98.10
Support levels: 97.00, 96.60

XAUUSD, H4

Gold (XAUUSD) has pulled back after failing to sustain momentum above the 3,745 level, with price slipping toward short-term support near 3,730. The recent move is accompanied by a clear bearish divergence between price and both RSI and MACD, signaling waning upside strength despite the higher highs in price. This divergence raises the risk of a deeper correction if buyers fail to defend the current consolidation zone.

Momentum indicators highlight this shift in tone. The RSI has retreated from overbought conditions and now hovers near 55, reflecting cooling momentum. Similarly, the MACD has crossed lower, with the histogram turning negative, suggesting bearish pressure is beginning to build.

Key support lies around 3,700, followed by 3,675 and 3,635 if selling intensifies. On the upside, 3,790 remains the critical resistance, with a breakout above this level needed to reopen the path toward 3,820. Until then, the broader bias leans cautious, with gold vulnerable to corrective moves unless buyers regain control above resistance.

Resistance levels: 3790.00, 3820.00
Support levels: 3730.00, 3675.00