Despite strengthening during today's Asian trading session, the dollar came under selling pressure as the European session began.
As is known, yesterday was a holiday in the United States due to Columbus Day. Banks and bond markets in the country were closed. There were also no significant macroeconomic data releases yesterday. Therefore, yesterday's weakening of the dollar could mostly be attributed to its inertia following the decline last Friday.
There are no important macroeconomic statistics scheduled for release today.
Against the backdrop of events in the Middle East (where Israel officially declared war on the Palestinian group Hamas after the latter launched a rocket attack on Israel from the Gaza Strip over the weekend), market participants preferred the dollar as a safe-haven asset to gold.
Gold prices sharply rose yesterday and remains near yesterday's highs today. The recent increase in buyers in the U.S. stock market in recent days has also contributed to the weakening of the dollar, as purchases of assets on the U.S. stock market are made in dollars.
Market participants are awaiting the release of the minutes from the September Federal Reserve (Fed) meeting on Wednesday (at 18:00 GMT). Note that following the September meeting, Fed policymakers decided to pause and not change the parameters of their current policy. Market participants will now carefully study the minutes to better understand the prospects for monetary policy and interest rate hikes in the United States.
The strong rhetoric of the Fed's statements regarding the prospects of monetary policy could help the dollar regain its upward momentum. Conversely, a soft tone in the minutes could have a negative impact on the dollar.
Additionally, market participants will pay attention to the release of U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) data. These releases are scheduled for Wednesday and Thursday (at 12:30 GMT).
As for gold, which we mentioned earlier, the XAU/USD pair rose by 2.8% from the 7-month low of 1812.00 reached last Friday, opening the week and the trading day with a 218-point gap.
At the beginning of today's trading day, XAU/USD attempted further growth, rising to the 1865.00 level. However, the pair later reversed and, as of writing, was trading near the 1857.00 level, 70 points above the important short-term support level of 1850.00. A break below it could be the first signal for resuming short positions on XAU/USD.
In this case, a trigger for the decline could also be harsh statements from Federal Reserve representatives regarding the prospects of the U.S. monetary policy, which may be included in the minutes of the September meeting.
By the way, yesterday, former Dallas Fed President Robert Kaplan stated that to lower inflation, it is necessary to continue to restrict financial conditions. "If a strong economy is behind the rise in long-term interest rates, then the FOMC may need to make more efforts," Kaplan noted, adding that "the labor market is still very strong, and wages remain high."
The employment report in the non-farm sector in the United States for September, published last week, indicates that the labor market remains "hot" and justifies the need for further interest rate hikes.
As is known, gold prices are quite sensitive to changes in the parameters of monetary policy by major central banks, primarily the Fed.
Among the positive factors for gold are ongoing high geopolitical uncertainty, still high inflation levels, possible problems in economic growth, and expectations of a possible early change in the direction of the Fed's monetary policy. According to CME Group data, approximately half of investors expect the first rate cut by the Fed to occur as early as May 2024.
This suggests that the chances of both rising and falling gold prices are roughly equal. In the short and medium term, market participants monitoring the dynamics of the XAU/USD pair will rely on news background and technical analysis.
