US Dollar Weakens, Yield Nears 4%, What Does It Mean for Gold?
The US dollar index (DXY) weakened in early trading today, after being pressured in recent sessions by expectations of a Fed interest rate cut. Slowing US economic data has prompted investors to reduce their dollar holdings and shift to other assets. At the same time, interest rate market participants still assess the likelihood of an interest rate cut in the coming months as quite significant, making the dollar's movement more fragile and sensitive to each new data release and comments from Fed officials.
Meanwhile, US government bond yields have begun to stabilize after a period of significant volatility. The 10-year bond yield is hovering around the psychological 4% level, well below its recent peak of nearly 4.8%. The 2-year yield, which is more sensitive to Fed interest rate expectations, is also trending lower than its peak, despite occasional brief rebounds. This pattern suggests the bond market is starting to price in a scenario where interest rates are nearing a cyclical peak, with greater room for future cuts than increases.
For gold, the combination of a weakening dollar and yields trending downward from their peaks is relatively positive news. A weaker dollar makes gold more attractive to holders of other currencies, while falling yields reduce the attractiveness of interest-bearing assets compared to precious metals. As a result, although gold could experience a technical correction after a strong rally, fundamental sentiment today still tends to support gold holding its high level. If future US inflation and employment data further strengthen expectations for interest rate cuts, gold has the potential to continue its upward trend; conversely, if the data strengthens and the dollar strengthens again, gold is vulnerable to short-term selling pressure.
Source: Newsmaker.id
