Dollar Fragile, Gold Holds Firm Amid Politics

Key Takeaways:

*Dollar sentiment remains fragile as Fed independence concerns and political risks overshadow safe-haven demand.

*Markets are pricing in an 83% probability of a September rate cut, fueling volatility in both yields and FX.

*Gold benefits from defensive flows and dovish policy expectations, consolidating near multi-week highs as investors hedge against inflation and political uncertainty.

Market Summary:

The U.S. Dollar Index (DXY) traded with a fragile tone as political turmoil surrounding the Federal Reserve continued to weigh on sentiment. President Trump’s attempt to dismiss Fed Governor Lisa Cook has raised doubts over the Fed’s independence, unsettling markets and undermining confidence in the dollar’s longer-term credibility as a reserve asset. While some safe-haven demand has offered temporary support, investors are increasingly wary of political interference shaping U.S. monetary policy.

At the same time, expectations of Fed easing have been a key driver across assets. Markets are pricing in an 83% chance of a September rate cut, reflecting concerns that risks to the labor market now outweigh persistent inflation pressures. This dovish tilt has pressured short-term Treasury yields lower while leaving long-end yields relatively elevated, highlighting fears that politically driven rate cuts could stoke inflation. The uncertainty has kept volatility high for the dollar, with traders cautious ahead of Friday’s core PCE release.

Against this backdrop, gold has strengthened, consolidating near multi-week highs as investors seek safety from institutional and political risks. The metal has benefited from both falling yields and defensive flows, with ETF holdings continuing to climb. Traders view gold as not just an inflation hedge but also a shield against political instability, a dynamic underscored by its ability to hold firm despite occasional dollar rebounds. In the near term, the interplay between inflation data, Fed credibility, and market expectations of policy easing will define the trajectory of both the dollar and gold, leaving the two assets tightly intertwined.

Technical Analysis

DXY, H4

U.S. Dollar Index (DXY) is trading near 98.40 after rebounding from the 97.75 support zone, with price regaining ground above the 20-period moving average. The 50-period MA around 98.20 is acting as an immediate pivot level, while resistance is seen at 99.05, followed by the higher barrier at 100.15.

Momentum indicators suggest a slight bullish bias. The Relative Strength Index (RSI) has climbed to 56, showing improving momentum but still below overbought territory. The MACD is inching higher in positive territory, with a mild bullish crossover hinting at strengthening upside pressure.

On the upside, a decisive close above 99.05 would pave the way for a test of the 100.15 resistance zone. On the downside, a failure to hold 98.15 would expose the 97.75 floor, with a break lower opening the path toward 97.10.

Resistance levels: 99.05, 100.15
Support levels: 98.30, 97.75

XAUUSD, H4

Gold (XAU/USD) is trading near $3,378 after rebounding from the $3,352 support zone, keeping price above both the 20- and 50-period moving averages. The recovery faces resistance at $3,400, followed by the next upside barrier at $3,435, while immediate support rests at $3,350. 

Momentum indicators maintain a constructive bias. The Relative Strength Index (RSI) is holding near 64, signaling firm bullish momentum while edging closer to overbought territory. The MACD remains in positive territory with a widening bullish spread, reinforcing the upside outlook.

On the upside, a sustained break above $3,400 would open the door for a retest of $3,435, with scope for extensions if momentum persists. On the downside, a close below $3,350 would weaken the bullish setup and expose $3,320, with deeper losses possible toward $3,280 if selling pressure accelerates.

Resistance levels: 3400.00, 3435.00
Support levels: 3350.00, 3320.00