Dollar slumps amid dovish Fed bets, gold rallies

The US dollar index (DXY) declined on Monday, heading towards last week’s low of 103.17, as growing expectations of a Federal Reserve rate cut as early as May 2024 kept bond yields and the greenback under pressure.

Spot gold prices rallied during Asian trading hours to reach a high of $2,018.32 per ounce. By 08:45 GMT, the precious metal was trading at $2,012.94, benefiting from dollar weakness and rising safe-haven demand amid signs of slowing global growth.

Recent US data has reinforced bets that the Fed is nearing the end of its tightening cycle. Upbeat jobless claims did little to sway expectations of a May rate cut, with markets pricing a 50% chance despite hawkish minutes from November’s Fed meeting.

With a quiet week ahead for US data, attention will turn to speeches from Fed policymakers and critical inflation and consumer spending figures on Wednesday and Friday. The week ends with a final appearance from Fed Chair Jerome Powell before the blackout period ahead of December’s policy decision.

Gold traders will eye manufacturing PMIs from the US on Friday for additional cues, while monitoring market expectations for the trajectory of Fed policy.