US Dollar Holds Firm Ahead of Fed as Gold Retreats on Rate Hike Expectations 

Key Takeaways:

*Hawkish Fed expectations continue to underpin the US dollar despite easing geopolitical risks.

*Gold remains pressured by higher Treasury yields and a stronger dollar, with safe-haven demand providing only limited support.

*The temporary US-Iran ceasefire reduced oil-driven inflation concerns but failed to significantly weaken the greenback.

Market Summary:

The US dollar remained firmly supported, with the US Dollar Index (DXY) holding near a one-month high around the 101.5 level as investors positioned cautiously ahead of the Federal Reserve’s two-day policy meeting. Although markets continue to expect the Fed to leave interest rates unchanged at 3.50%–3.75%, expectations for a surprise 25-basis-point rate hike have risen sharply to around 36%, up from approximately 16% a week ago, while traders continue to price an 81% probability of a rate increase by September. The increase in tightening expectations reflects lingering concerns that inflation could remain elevated despite the recent pullback in crude oil prices, supporting Treasury yields and underpinning demand for the US dollar.

The greenback initially softened after the United States paused military strikes against Iran and Tehran signalled it would also suspend retaliatory attacks, raising hopes that mediation efforts could prevent a broader regional conflict. The easing of geopolitical tensions triggered a sharp decline in crude oil prices, reducing near-term inflation concerns and encouraging investors to rotate back into risk-sensitive assets. However, the dollar quickly recovered as US Treasury yields remained relatively resilient compared with other major economies, while analysts pointed to limited buying in the front end of the Treasury curve as another factor supporting the greenback. Against the Japanese yen, the dollar remained close to multi-decade highs around 163.8, with the wide US-Japan interest rate differential continuing to favour the US currency ahead of this week’s Bank of Japan meeting.

Gold prices, meanwhile, came under renewed pressure after rallying earlier in the week, with spot gold retreating toward the $4,050–4,060 per ounce region as the stronger US dollar and rising expectations of tighter monetary policy reduced demand for the non-yielding precious metal. While the sharp fall in crude oil prices initially supported bullion by easing inflation concerns and lowering Treasury yields, sentiment weakened as investors shifted their attention back to the Federal Reserve. President Donald Trump’s comments that the United States was engaged in “good talks” with Iran improved hopes for a diplomatic resolution, although his warning that military strikes could resume if negotiations fail, together with reports of fresh drone attacks in the Middle East, continued to provide some residual safe-haven support for gold.

Looking ahead, markets will closely monitor the Federal Reserve’s policy decision, second-quarter US GDP, and the Core PCE Price Index for further guidance on the interest rate outlook. Any indication from Fed Chair Kevin Warsh that inflation risks remain elevated due to tariffs, energy prices or labour market resilience could reinforce the higher-for-longer interest rate narrative, supporting the US dollar while weighing further on gold prices. Conversely, a more dovish tone could pressure the dollar and provide fresh upside momentum for bullion. Meanwhile, physical demand remains relatively resilient after China’s gold imports via Hong Kong more than doubled from a year earlier, although imports eased slightly from the previous month, suggesting underlying demand continues to provide longer-term support for the precious metal.

Technical Analysis 

GOLD, H4: 

Gold remains trapped within a broader medium-term downtrend despite the recent recovery from the 3,960 support zone. Price recently broke above the descending trendline that had capped gains since late May, but bullish momentum quickly faded near the 4,105–4,160 resistance area, where sellers stepped back in. The latest price action appears to be forming a potential double-top pattern around 4,105, with price now pulling back toward the neckline near 4,045–4,050. A confirmed break below this support could complete the bearish reversal pattern and expose the 4,025 support, followed by the stronger 3,960 zone. On the upside, buyers would need to reclaim 4,105 and then break above the 4,160–4,220 resistance region to confirm a stronger trend reversal and shift the medium-term outlook back to the upside.

Momentum indicators are turning increasingly bearish. RSI has slipped to around 44 and remains below its moving average, reflecting weakening buying momentum without yet reaching oversold conditions. Meanwhile, MACD has crossed below the signal line, with the histogram hovering in negative territory, indicating bearish momentum is gradually strengthening. The loss of momentum following the rejection at resistance suggests sellers are regaining short-term control. Overall, Gold is showing signs of renewed downside pressure after failing to sustain its breakout above the descending trendline. 

Resistance Levels: 4160.00, 4215.00

Support Levels: 4040.00, 3960.00

Technical Analysis 

Dollar Index, H4: 

The U.S. Dollar Index (DXY) maintains its medium-term bullish structure after extending higher from the June lows, with price continuing to trade above the rising trendline that has supported the recovery over recent weeks. The index has now climbed back above the 101.35 resistance level and is approaching the next key barrier around 101.85. Although the latest advance has been relatively steady rather than impulsive, the series of higher highs and higher lows suggests buyers remain in control. A sustained break above 101.85 would strengthen bullish momentum and pave the way for a move toward the psychological 102.00 area, while failure to clear this resistance could trigger a short-term pullback toward 101.35. If selling pressure intensifies, the ascending trendline together with support around 100.80 should provide the first meaningful demand zone.

Momentum indicators continue to favor the upside, although signs of near-term consolidation are emerging. RSI has climbed to around 63 and remains above its moving average, reflecting healthy bullish momentum without yet entering overbought territory. Meanwhile, MACD remains above the signal line with the histogram hovering slightly above the zero line, indicating that upside momentum is still intact but has moderated compared with the earlier rally. This suggests buying pressure remains positive, though the pace of gains has become more measured. Overall, DXY remains constructive while holding above the 101.33 breakout level and the ascending trendline.

Resistance Levels: 101.85, 103.45

Support Levels: 101.35, 100.80