Gold prices (XAU/USD) surged to around $4,395 during early Asian trading hours on Monday, extending their rally as expectations for a US Federal Reserve (Fed) interest rate hike diminished following softer US economic data. The US Census Bureau reported that US Retail Sales declined by 0.6% month-over-month in July, following a 0.2% increase in June and falling short of the expected 0.1% growth. On an annual basis, Retail Sales rose 5.0% in July, compared to a revised 6.8% in June. This data, combined with recent Consumer Price Index (CPI) and Producer Price Index (PPI) releases, signaled easing inflationary pressures, weighing on the US Dollar and supporting gold prices [1][2].
Money markets now price in a 33.1% chance of a Fed rate hike in September, down from 44% last week, according to the CME FedWatch tool. Lower interest rate expectations reduce the opportunity cost of holding non-yielding assets like gold, enhancing its investment appeal. Commerzbank analysts maintain a constructive outlook for gold, citing the Fed's likely pause on rate hikes and renewed ETF investor demand as supportive factors, though they caution that price movements may remain volatile. Technical analysis shows gold holding above key moving averages, with the Relative Strength Index (RSI) at 64.09, indicating bullish momentum without being overbought [1].
Similarly, the EUR/USD pair strengthened to around 1.1575 as the US Dollar weakened on the back of the same softer US data and shifting Fed expectations. The Euro also found support from steady Eurozone economic data, with Q2 GDP growth at 0.4% quarter-over-quarter and 1.0% year-over-year, in line with forecasts. The region's trade balance returned to a surplus in June after a brief deficit from March to May, further bolstering sentiment. Technical indicators for EUR/USD remain constructive, with the pair trading above the 100-day simple moving average and an RSI of 63, suggesting continued upward momentum [2].
Geopolitical tensions in the Middle East, particularly regarding the Strait of Hormuz, were noted as potential factors that could cap gains for gold and influence safe-haven flows into the US Dollar. Iranian officials reiterated the lack of negotiations with the US and set conditions for resuming shipping through the waterway, following comments from US President Donald Trump about the strategic region [1][2].
Looking ahead, traders are expected to monitor upcoming remarks from European Central Bank (ECB) President Christine Lagarde for further cues on the Euro, while market participants remain convinced that the Fed may still need to raise rates by the end of 2026 to address persistent inflation [2].
CONCLUSION
Weaker-than-expected US economic data and fading Fed rate hike expectations have driven both gold and the Euro higher, while the US Dollar has come under pressure. Constructive technical and fundamental outlooks for both assets are supported by easing inflation and steady Eurozone data, though geopolitical risks and future central bank actions remain key variables. The market impact is high as traders adjust positions in response to shifting monetary policy expectations.