Dollar Weakens as Gold Hits Record Highs on Fed Dovish Shift

Key Takeaways:

*The U.S. dollar extended losses as dovish Fed commentary, weak data, and political turmoil eroded policy confidence.

*Fed Chair Powell flagged a “notably softer labor market,” cementing expectations for two rate cuts by year-end.

*Gold surged past $4,200 per ounce as investors sought refuge amid declining real yields and de-dollarization momentum.

Market Summary:

The U.S. Dollar extended its decline this week as investors absorbed a potent mix of dovish Federal Reserve signals, weakening domestic data, and rising geopolitical risk. Fed Chair Jerome Powell’s acknowledgment of a “notably softer labor market,” alongside Governor Stephen Miran’s warning of “more downside risk than a week ago,” has solidified expectations for two rate cuts by year-end. The latest Fed Beige Book showed that economic activity “changed little,” underscoring consumer fatigue and tepid demand across sectors. With yields narrowing and confidence in the U.S. policy outlook fading, the greenback’s slide reflects a broader reassessment of the American growth narrative.

The ongoing federal government shutdown, now entering its third week, has compounded uncertainty by halting key data releases and stalling fiscal operations. Treasury Secretary Bessent’s remark that the shutdown is “the only thing slowing Trump down” encapsulates market frustration, with estimates suggesting a 0.1–0.2% drag on quarterly GDP. Meanwhile, the U.S.–China trade conflict has escalated from tariff threats to reciprocal port fees and export curbs, further unsettling global supply chains. Together, soft data, policy paralysis, and trade frictions have eroded the dollar’s safe-haven appeal, prompting investors to rotate into alternative assets.

Gold has emerged as the prime beneficiary of this shift, surging to new record highs above $4,200 per ounce as investors flock toward non-yielding assets amid declining real rates and a weakening dollar. The Fed’s dovish pivot has erased the opportunity cost of holding bullion, while geopolitical flashpoints—from Western sanctions on Russia’s oil “shadow fleet” to Trump’s pledge that India will cut Russian oil imports—have fueled haven demand. Central banks, led by the People’s Bank of China, have increased gold reserves for 11 straight months, highlighting a global trend toward de-dollarization and diversification away from sovereign credit risk.

This move has been reinforced by the so-called “debasement trade,” as ballooning U.S. deficits and political gridlock undermine faith in paper assets. While gold’s rally may appear stretched near term, its core drivers—monetary easing, fiscal fragility, and geopolitical fragmentation—remain firmly intact. Unless the Fed restores policy clarity and Washington breaks its fiscal stalemate, the divergence between a softening dollar and a soaring gold market is likely to persist, defining one of the most dominant macro trends in global markets today.

Technical Analysis

DXY, H4

The U.S. Dollar Index (DXY) has softened from the recent peak at 99.55, retreating toward the 98.15–98.80 zone as short-term momentum fades. The index is now testing its 20-period moving average, a level that has acted as near-term dynamic support since early October. The broader uptrend remains intact following the breakout above the descending trendline, though the current pullback reflects profit-taking ahead of key U.S. data releases and renewed rate-cut speculation.

The RSI has slipped to 38, suggesting weakening bullish momentum, while the MACD histogram is flattening near the zero line, hinting at a possible short-term consolidation or correction phase. 

Overall, DXY remains in a constructive medium-term uptrend, but short-term bias has turned neutral to slightly bearish as momentum cools. Traders should watch 98.15 support closely holding above keeps bulls in control, while a break below could trigger a deeper retracement toward 97.50.

Resistance Levels: 98.80, 99.55
Support Levels: 98.15, 97.50

XAUUSD, H4

Gold continues its sharp climb, extending the bullish channel that began in mid-September. The metal remains firmly supported by its ascending trendline and the 20-period moving average, reflecting strong upside momentum. The latest leg higher has pushed prices above $4,200, testing the 0.786 Fibonacci extension level near $4,270, with only modest pullbacks seen so far shows a sign of persistent dip-buying interest.

The RSI is hovering around 79, signaling overbought conditions, though not yet flashing a clear reversal signal as momentum remains firmly bullish. Similarly, the MACD line stays above the signal line, confirming continued upward pressure. 

Overall, gold’s short-term bias remains bullish within a well-defined ascending structure, but momentum indicators suggest the rally is overextended. A brief technical correction toward $4,200 would help reset overbought signals before the next potential leg higher.

Resistance Levels: 4270.00, 4355.00

Support Levels: 4200.00, 4150.00