Fed Caution Lifts Dollar, Gold Pauses for Breath

Key Takeaways:

*Dollar lifted by cautious Fed tone, higher yields, and haven flows.

*Gold correction marks pause in rally; central bank demand underpins.

*Trump–Xi talks risk reigniting volatility, impacting both FX and metals.

Market Summary:

The U.S. dollar staged a resilient rebound after the Federal Reserve’s 25bps rate cut, with markets shifting focus away from the size of the move and toward the guidance that followed. Fed Chair Powell struck a cautious tone, stressing a “meeting-by-meeting” approach that kept the door open for future cuts but avoided any pre-commitments. That stance calmed fears of an aggressive easing cycle, anchoring Treasury yields higher and giving the greenback fresh momentum. The recovery was reinforced by relative weakness elsewhere, as sterling and yen faced their own domestic policy pressures, driving investors back toward dollar assets.

Safe-haven demand further boosted the greenback, with global markets still navigating volatile risk sentiment. Rising political uncertainty in Japan, coupled with renewed worries over Eurozone growth, sharpened the appeal of the dollar as the least-risky option among major currencies. The U.S. economy, while slowing, remains comparatively stronger than its peers, adding a fundamental underpinning to the dollar’s recovery. With investors wary of overpricing dovish bets, the U.S. currency continues to benefit from its unique role as both a defensive asset and a yield-driven play.

Gold, by contrast, slipped from record highs near $3,707 per ounce as stronger yields and a firmer dollar encouraged profit-taking. The pullback was amplified by stretched positioning, with momentum gauges signaling overbought conditions. Still, the broader narrative for bullion remains firmly constructive. Persistent central bank accumulation on track to approach 900 tonnes in 2025—provides a structural floor for prices, while ongoing geopolitical flashpoints sustain investor demand for long-term hedges. Although jewelry demand in Asia has softened due to high prices, institutional and sovereign interest continues to drive the market.

Looking ahead, both assets face a pivotal test. Stronger U.S. inflation or labor data could entrench Fed caution, lifting the dollar and deepening gold’s correction. Conversely, weaker prints may renew expectations for further easing, softening the dollar and reigniting gold’s upside momentum. The upcoming Trump–Xi meeting this Friday is another key variable: should talks break down over trade, tariffs, or technology access, markets are likely to see a dual safe-haven bid into both the dollar and gold. However, a cooperative outcome may reduce immediate hedging demand, easing pressure on both. In either case, the balance of policy divergence and geopolitical risks ensures the interplay between the two remains central to market direction.

Technical Analysis

DXY, H4

The Dollar Index has staged a rebound from the 97.00 support area, testing 97.55 resistance. This bounce suggests buyers are attempting to defend key levels after recent weakness. A sustained break above 97.55 could open the path toward 98.10, while failure to hold above 97.40 risks pulling the index back to retest 97.00 and possibly 96.50.

Momentum signals show improving sentiment. The RSI has bounced to 56, recovering from oversold conditions and suggesting building bullish momentum. However, MACD remains in negative territory, indicating the recovery is not yet fully confirmed. Price action near the 97.55–98.10 zone will be crucial in determining whether the dollar can re-establish upward traction or face renewed selling pressure.

Overall, the DXY is attempting to recover but remains vulnerable. The short-term outlook hinges on whether buyers can maintain control above 97.40, setting the tone for the next leg of movement across major pairs.

Resistance levels: 97.55, 98.10
Support levels: 97.00, 96.50

XAUUSD, H4

Gold (XAUUSD) is trading around $3,650, easing after failing to sustain gains above the $3,680 resistance zone. Price remains supported by the 20-period moving average, but a close below $3,615 would confirm deeper retracement toward the $3,570 Fibonacci support, with further downside risk toward $3,482 if selling pressure accelerates. On the upside, reclaiming $3,680 would re-expose the $3,720 region and extend the broader bullish structure.

Momentum indicators suggest weakening upside momentum. The RSI has slipped to 46, confirming the loss of bullish strength after recently forming a bearish divergence near overbought territory. Similarly, the MACD shows a bearish crossover, accompanied by negative histogram bars, reinforcing the risk of a corrective phase.

Overall, Gold is consolidating near the highs but flashing early signs of exhaustion. $3,680 remains the key ceiling for bulls, while $3,615 is the immediate pivot to watch on the downside.

Resistance levels:3680.00, 3800.00
Support levels: 3615.00, 3570.00