The U.S. Dollar index (USDX) has been under pressure lately as tariffs threaten to induce a recession in the country.
USDX – Weekly Chart
The USDX stalled last week after sharp losses in the prior week and we may see a move to the 100 level coming over the next week or two.
The U.S. dollar has been falling and gold is on the riser as traders look for a safe haven after recent market volatility.
Daan Struyven, from the commodities division of Goldman Sachs, said that global economic uncertainty is heightening fears of a weaker U.S. dollar while driving higher demand for gold. In a recent interview on CNBC, Struyven said that many investors and central banks are on a gold-buying spree as they move to safe assets to guard against Donald Trump’s tariff policies.
Traders are also preparing for the upcoming Federal Reserve policy meeting set for Wednesday. Although the CME Group FedWatch tool shows a 99% probability that the Fed will leave interest rates unchanged, markets will be watching Fed Chair Jerome Powell’s post-meeting comments for any hints on the future policy direction.
Powell has consistently played down expectations for rate cuts, reinforcing the Fed’s cautious approach and that has hurt the USDX. Recent economic data has pointed to a slowdown in the general economy and that may be a factor in Powell’s latest appearance.
“The broader driver here is uncertainty and risks, downside risks to the US and the global economic outlook, and that is pushing down some of the more procyclical commodities closely tied to US growth, such as oil, but it’s supporting gold,” Struyven said. “We have seen very significant increases in investment demand for gold, and we’re seeing very rapid buying from central banks for gold as well”.
“Our forecast base case for (gold) year-end is $3,100 per ounce. But we think that the risk to this base case and to our $3,100-$3,300 range are skewed to the upside. It’s pretty remarkable. We have seen a rally despite a decline in speculative positioning. So positioning is a lot cleaner than before the rally”.
The current dynamic could put the USDX on a path to the key 100 support level and it may come with the central bank meeting.
