Gold dips as Fed minutes dollar losses shift rate-hike expectations

Gold (XAU/USD) edged lower on Wednesday, losing nearly 1.20% as the US dollar recouped losses and Treasury yields resumed their advance ahead of the Federal Reserve minutes release. The confirmed change is that markets have sharply reduced expectations for an October rate hike—now at 20.5%, down from about 51% a week ago, according to CME FedWatch—while pricing in an 84.5% chance of a hike at the December meeting.

This matters for gold traders and forex participants because the shift in rate-hike urgency directly affects the opportunity cost of holding non-yielding assets like gold and alters the relative appeal of dollar-denominated instruments.

What changed for the US dollar and rate-hike expectations

According to Global Banking and Finance, the US dollar remained lower on Wednesday after European bond market stress abated and traders turned their attention to the September 15-16 FOMC minutes and upcoming speeches by Fed officials. The dollar index rose 0.16% to 102.07, recovering from a 0.27% slide on Tuesday, as reported by lufkindailynews.com. Fed officials Christopher Waller, Neel Kashkari, and Alberto Musalem are all scheduled to speak later on Wednesday, which could provide further clarity on the rate path.

Commonwealth Bank of Australia currency strategist Samara Hammoud noted, "With little forward guidance from Chair (Kevin) Warsh, markets have reacted sharply to each US data release and policymaker speech," and added, "We expect the Fed to wait until December before hiking again." The central bank is also set to release consumer credit data, expected to show a decrease to $15 billion in August from $18.06 billion in July.

How the euro and yen responded to political and monetary signals

The euro surged by the most in seven weeks in the prior session, supported by a sharp fall in French bond yields after the frontrunner in next spring's presidential election outlined plans to slash spending. Global Banking and Finance specified that French bond yields fell following Marine Le Pen's announcement of €140 billion net spending cuts by 2032, easing euro-zone debt stress. The euro later stabilised at 1.1234 on Wednesday, according to Action Forex.

Meanwhile, the Japanese yen weakened 0.19% against the greenback to 158.43 per dollar, even after a dovish Bank of Japan board member said she would support interest rate increases. Sterling dipped 0.08% to $1.3262. Bond yields around the world have climbed in recent weeks due to expectations of central bank rate hikes and concerns about government finances. French debt remains under growing pressure as politicians struggle to curb the budget deficit ahead of a divisive election in 2027.

The calling of a snap election in Spain added to the recent stress on the euro.

Why gold fell as the US dollar and Treasury yields rebounded

FXStreet reported that gold (XAU/USD) edged lower on Wednesday, losing nearly 1.20% as the US dollar and US Treasury yields resumed their advance following a modest pullback the previous day. The rebound in the dollar and yields increased the opportunity cost of holding gold, which pays no interest, and strengthened the dollar-denominated pricing pressure on the precious metal.

The Swiss franc also lost ground for the third consecutive day against the US dollar, retracing the rebound witnessed late last week, according to FXStreet. For gold traders, the key operating implication is that the near-term direction of XAU/USD remains tied to the Fed's rate path: a delayed October hike reduces immediate headwinds, but the high probability of a December hike keeps medium-term pressure on gold prices.

What to confirm next from the Fed minutes and speeches

The next source-document check is the release of the September 15-16 FOMC minutes, which will provide detailed insight into the committee's debate on the rate path and the economic outlook. Traders will also monitor the speeches from Fed officials Waller, Kashkari, and Musalem for any forward guidance that could shift the current market pricing.

The unresolved detail is whether the softer PCE and nonfarm payroll reports that have dampened rate-hike urgency will be confirmed as a sustained trend or a temporary soft patch.

According to Gavin Friend, a senior markets strategist at National Australia Bank, "There seems to be a little bit less urgency on the Fed to hike rates after the softer PCE and then the nonfarm payroll reports recently." Until the minutes and speeches provide clearer signals, the market is likely to remain sensitive to each data release and policy comment, keeping gold and forex volatility elevated.

Reference

• https://m.economictimes.com/markets/forex/forex-news/dollar-holds-losses-as-markets-await-fed-minutes-speakers/articleshow/134753668.cms
• https://www.fxstreet.com/news/gold-falls-as-us-dollar-treasury-yields-rebound-ahead-of-fed-minutes-202610071045
• https://www.actionforex.com/contributors/technical-analysis/656680-eur-usd-waiting-for-fed-minutes
• https://lufkindailynews.com/news_reuters/business/dollar-holds-losses-as-markets-await-fed-minutes-speakers/article_373d775a-a768-555f-a8d5-c8d877b3bce2.html
• https://www.globalbankingandfinance.com/dollar-holds-losses-markets-await-fed-minutes-speakers