Forex Today: Gold slumps below $4,200 on hawkish Fed outlook, Mideast tensions
Here is what you need to know on Monday, September 28:
Gold (XAU/USD) remains under heavy selling pressure to start the new week as the hawkish Federal Reserve (Fed) outlook and a further escalation of geopolitical tensions weigh. In the absence of high-impact macroeconomic data releases, investors will continue to pay close attention to comments from central bankers and headlines coming out of the Middle East. During the early trading hours of the Asian session on Tuesday, the Reserve Bank of Australia (RBA) will announce monetary policy decisions.
Over the weekend, United States (US) President Donald Trump rejected Iran's proposal to end the conflict and reopen the Strait of Hormuz, calling Iran's offer not acceptable and claiming that Tehran wants to make a deal because "they're losing so badly." In response, Iranian Foreign Minister Abbas Araghchi said they are open to "real diplomacy" but also ready to confront any new US attacks, as reported by Al Jazeera.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.10% | -0.10% | 0.09% | 0.08% | 0.06% | -0.16% | 0.12% | |
| EUR | -0.10% | -0.04% | 0.04% | -0.01% | -0.02% | -0.14% | 0.03% | |
| GBP | 0.10% | 0.04% | 0.06% | 0.03% | 0.01% | -0.09% | 0.19% | |
| JPY | -0.09% | -0.04% | -0.06% | -0.05% | -0.07% | -0.16% | 0.13% | |
| CAD | -0.08% | 0.00% | -0.03% | 0.05% | -0.04% | -0.13% | 0.14% | |
| AUD | -0.06% | 0.02% | -0.01% | 0.07% | 0.04% | -0.10% | 0.18% | |
| NZD | 0.16% | 0.14% | 0.09% | 0.16% | 0.13% | 0.10% | 0.29% | |
| CHF | -0.12% | -0.03% | -0.19% | -0.13% | -0.14% | -0.18% | -0.29% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Reflecting the risk-averse market atmosphere, the US Dollar (USD) Index clings to moderate gains above 101.00 in the European morning, while Gold (XAU/USD) trades at its lowest level since early August below $4,200, losing about 2.5% on the day. Finally, US stock index futures fall between 0.4% and 0.9% in the European morning.
In the meantime, the CME FedWatch Tool shows that markets are currently pricing in about a 70% chance of a Fed rate hike in October, compared to about 55% probability at the beginning of the previous week.
Cleveland Federal Reserve (Fed) President Beth Hammack delivered a moderately hawkish message on Friday, with an FXS Speechtracker score of 7.2/10. The emphasis on the “biggest risk” being the formation of an inflationary mindset, alongside concerns about demand-driven pressures and capital expenditures keeping price pressures elevated, underscored a strong commitment to preventing a de-anchoring of inflation expectations. Hammack’s insistence that policy must remain at a restrictive stance to lower inflation, even as growth and the job market hold up well, reinforced a bias toward maintaining tighter conditions for the Dollar.
HSBC sees modest Dollar upside as supportive forces build
Analysts at HSBC argue that the broad USD is likely to gain some ground in the near term, noting that “cyclical, political and structural forces” are set to “turn more supportive or become less of a headwind.” The bank adds that “energy-price resilience and a broader reassessment of fiscal risk should also favour the USD at the margin,” reinforcing its view of modest Dollar strength against major peers.
AUD/USD fluctuates in a tight range above 0.7000 on Monday after posting marginal gains in the previous week. Markets expect the RBA to raise the policy rate by 25 basis points (bps) to 4.6% following the September policy meeting.
RBA seen delivering decisive hike as inflation risks stay skewed higher
Economists at ING expect the RBA to press ahead with tighter policy next week, arguing that “the RBA [is set] to deliver a decisive 25bp rate hike on Tuesday, reflecting an economy that continues to run hot across multiple fronts.” While they acknowledge that “the housing market shows signs of cooling,” ING anticipates that policymakers will stress that “risks remain tilted to the upside and further vigilance is required to ensure prices return sustainably to target.”
EUR/USD stays in a consolidation phase below 1.1400 after posting losses for the third consecutive time last week.
GBP/USD holds steady at around 1.3250 in the European morning following the previous week's sharp decline that saw the pair lose more than 1%.
USD/JPY trades in positive territory near 157.50 on Monday after losing 1% on Friday. The minutes of the Bank of Japan's (BoJ) July meeting showed that members largely agreed that financial conditions were still accommodative, while some noted that consumer prices were still rising, reflecting increased import costs.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.