Gold prices (XAU/USD) have edged down and are testing the $2,500 level on Monday, pressured by the recent rebound in the US Dollar (USD). Gold, which is inversely correlated to the USD, is experiencing headwinds as the Greenback recovers from its earlier year-to-date lows.
Gold Pressured by USD Recovery
Gold’s recent decline is attributed to the strengthening USD, which has rebounded from its year-to-date low of 100.52 on the US Dollar Index (DXY) recorded last Tuesday. Following the release of July’s US Personal Consumption Expenditures (PCE) data on Friday, which showed inflation steady from the previous month, the USD has climbed back to around 101.60. This data has alleviated concerns of a severe economic downturn, suggesting that the US economy may be on a path toward a “soft” landing rather than a “hard” one.
The outlook for US interest rates remains relatively stable. The probability of a 50 basis point (bps) rate cut in September is just above 30%, while a 25 bps cut is fully priced in, according to the CME FedWatch Tool.
Trading activity is expected to be light on Monday due to the Labor Day holiday observed in both the US and Canada. However, the employment data to be released later this week, culminating in the Nonfarm Payrolls (NFP) report on Friday, will be crucial in determining whether the Federal Reserve (Fed) will implement a larger 50 bps cut or stick with a more typical 25 bps reduction.
