Fed’s Hawkish Tone Keeps Dollar Firm, Weighs on Gold

Key Takeaways:

*Fed Governor Michelle Bowman and other policymakers warned that inflation remains above target, signaling no rush to cut rates. The remarks reinforced expectations of “higher-for-longer” policy, supporting the U.S. dollar.

*The 10-year Treasury yield held near 4.55%, reflecting confidence in U.S. economic resilience and tempering rate-cut bets. 

*Spot gold retreated toward $3,920 per ounce, as investors adjusted positions in response to firm yields and a stronger dollar.

Market Summary: 

The U.S. Dollar extended gains in recent sessions as Federal Reserve officials maintained a firm tone on inflation, dampening hopes for early 2026 rate cuts. Fed Governor Michelle Bowman emphasized that inflation remains above target and that the central bank needs more evidence of sustained progress before easing policy. Her comments echoed similar remarks from other policymakers, reinforcing the “higher-for-longer” narrative. As a result, Treasury yields stayed elevated with the 10-year note hovering near 4.55% keeping the greenback broadly supported against major currencies.

Economic data also lent modest backing to the dollar’s strength. The Chicago PMI improved to 43.8 in October from 40.6 previously, signaling early signs of stabilization in U.S. manufacturing after a prolonged contraction. While the reading remains below the expansion threshold of 50, investors viewed the uptick as consistent with a soft-landing scenario, reducing the urgency for rate cuts. Futures markets now price in fewer than three Fed cuts for 2025, compared to nearly five expected earlier this quarter, a significant recalibration that continues to underpin demand for U.S. assets.

Gold prices, meanwhile, slipped as the stronger dollar and firm yields weighed on demand for non-yielding assets. Spot gold retreated toward $3,920 per ounce after testing the $4,035 mark earlier in the session, with traders adjusting to the Fed’s hawkish rhetoric. The opportunity cost of holding gold has risen alongside real yields, prompting some investors to take profits from the metal’s recent rally. Still, support remains resilient above the $3,900 level as long-term inflation expectations stay elevated and geopolitical tensions simmer in the background.

Overall, market sentiment remains delicately balanced between policy expectations and risk appetite. A stronger U.S. economy could keep the dollar buoyant while exerting downward pressure on gold, but any signs of softening inflation or weaker labor data could reverse that trend. Investors will now turn their attention to upcoming ISM Services and U.S. Nonfarm Payrolls reports later this week for fresh direction with data surprises likely to dictate the next move for both the dollar and gold.

Technical Analysis

DOLLAR_INDX, H4

The DXY chart is showing a bullish trend. The price has recently surged above key resistance levels, pushing toward the 99.90 handle, and appears to be testing the 100.00 level. The broader uptrend remains intact, supported by the 20-period and 50-period moving averages, both of which are sloping upwards, indicating sustained positive momentum.

The RSI is currently at 70, suggesting that the price is approaching overbought territory, which could lead to short-term consolidation or pullbacks. However, the MACD is still showing strong bullish momentum, with the histogram and signal line in positive territory.

Overall, the DXY is in a bullish phase, but some short-term caution is warranted as the index nears overbought conditions. Keep an eye on the 100.25 level for potential resistance and the reaction there.

Resistance Levels: 100.25, 101.10
Support Levels: 99.50, 98.80

GOLD, H4

The XAUUSD chart is showing signs of consolidation after a sharp move higher. The price has recently pulled back from its highs near $4,400, where it had failed to break above resistance levels. The price is now hovering around $3,995 and testing a key support zone around the $3,920 level.

The RSI has recently dropped to 47, indicating neutral momentum. It is not in overbought or oversold territory, but it does suggest that gold is currently in a period of indecision or consolidation. The MACD is also showing a slight bearish divergence, with the histogram in negative territory, suggesting that the price could face some short-term weakness.

Resistance Levels: 4035.00, 4135.00

Support Levels: 3920.00, 3840.00