Stronger Dollar and Fed Hike Bets Pressure Gold

Stronger dollar and Fed hike bets pressure gold and oil as traders await UK GDP data and Lagarde’s speech.

A strengthening US dollar defined Thursday’s Asian session, driven by expectations of further Federal Reserve rate increases. The Japanese yen stayed weak against the dollar, although rising Japanese wholesale inflation could add pressure on the Bank of Japan to tighten policy. Gold faced downside pressure from the firmer dollar and rate expectations, while crude oil fell as geopolitical concerns eased and expectations of additional supply weighed on prices. Meanwhile, a recovery in US technology stocks suggests equity sentiment is improving, though higher interest rates remain a risk.

Dollar Climbs to a 19-Month High

The US dollar gained strength as hotter-than-expected inflation and hawkish Fed comments lifted expectations of further rate hikes. Rising Treasury yields added support, pushing the dollar index to its highest level in roughly 19 months.

At its October 27-28 meeting, the FOMC held rates at 3.75% to 4.00% in a 10-2 vote, with two members preferring another 25 basis point increase. The Fed upgraded its growth assessment from solid to strong and kept the door open to further hikes if inflation stays elevated. Markets now watch for signals on a possible December increase, and the next meeting takes place December 8-9. US Unemployment Claims arrive at 1:30 PM GMT.

Gold Faces Bearish Pressure

Gold stayed under pressure Thursday as stronger-than-expected US inflation boosted Fed hike expectations. The firmer dollar and rising Treasury yields also reduced demand for the metal. Traders now focus on jobless claims, comments from Fed officials, and Friday’s PPI inflation report for fresh direction.

Stronger Dollar and Fed Hike Bets Pressure Gold

Euro Caught Between ECB Support and Dollar Strength

The euro carries a mixed outlook. Expectations of another ECB rate increase in December provide some support, particularly with Eurozone inflation elevated. However, the stronger dollar and Fed tightening bets limit its upside.

On October 29, the ECB held all three key rates, keeping the deposit facility at 2.50%, the main refinancing rate at 2.65%, and the marginal lending rate at 2.90%. Euro-area inflation rose to 3.8% in September from 3.2% in August, driven mainly by energy costs. ECB President Lagarde speaks at 7:30 PM GMT, and the next meeting falls on December 16-17.

Swiss Franc Slips on Rate Differentials

The Swiss franc came under pressure as the stronger dollar and Fed hike expectations pushed investors toward higher-yielding currencies. Although Swiss inflation increased to 1.5%, the SNB policy rate remains at 0%, which limits the franc’s yield advantage. The outlook stays bearish against the dollar, though rising global uncertainty could bring safe-haven demand back. The next SNB meeting takes place December 10.

Pound Faces a Mixed Picture Ahead of GDP

Sterling faces a mixed outlook. The Bank of England’s recent rate increase offers support, but a stronger dollar and elevated energy prices create pressure. The BoE raised its Bank Rate by 25 basis points to 4.00% on November 4, with an 8-1 vote, and one member preferring a larger hike to 4.25%. UK CPI rose to 3.5% in September from 3.1%, and policymakers indicated the latest hike does not automatically signal a prolonged hiking cycle.

UK GDP data at 7:00 AM GMT is the biggest event of the day. Stronger growth could help the pound recover, while disappointing figures could trigger further weakness. The next BoE meeting is December 17.

Canadian Dollar Remains Under Pressure

The Canadian dollar stayed weak as stronger US inflation, Fed hike expectations, and falling oil prices supported USD/CAD. Rising Canadian inflation and the Bank of Canada’s recent increase offered some support, but weaker employment conditions and lower oil prices remain challenges. On October 28, the BoC raised its overnight rate by 25 basis points to 2.50%, and Canadian inflation rose to 3.1% in September. The next BoC meeting is December 9.

Oil Slides on Peace Hopes

Oil prices fell as hopes for peace negotiations reduced geopolitical concerns, while rising US crude inventories and increased OPEC+ production added to supply worries. Even so, uncertainty around the Strait of Hormuz could limit further losses. Traders will watch today’s official US inventory figures closely, as they could decide the next major move in crude.

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