The US dollar clawed back ground in early Wednesday trading, though sentiment remains fragile as markets weigh the risk of a government shutdown on October 1. Gold, meanwhile, is mirroring the retracement seen during Asia hours on Tuesday, with investors pausing ahead of a heavy slate of Federal Reserve commentary and Friday’s release of the Fed’s preferred inflation gauge.
Fed in Focus: Balancing Act Persists
Speaking in Rhode Island on Tuesday, Fed Chair Jerome Powell reinforced the central bank’s cautious stance, warning that inflation risks remain tilted upward while employment risks lean downward. His remarks underscored the challenge of calibrating policy at a time when labor market softness collides with still sticky price pressures.
Market odds for a rate cut at the Fed’s October meeting nudged higher, with traders now pricing in over 90% probability of another move. Still, a rebound in the Fed Sentiment Index into hawkish territory suggests policy makers are not yet ready to fully embrace aggressive easing a factor that has helped cap gold’s upside and offered the greenback room to recover.
Key Data and Risks on the Radar
- Core PCE (Friday): Traders are fixated on the August release of the Fed’s preferred inflation metric, expected to steer the next phase of policy expectations.
- Fed Speeches: San Francisco Fed President Mary Daly is next in line, following a week of mixed commentary from policymakers.
- Fiscal Risks: The looming threat of a US government shutdown is adding another layer of uncertainty, leaving dollar gains vulnerable to sudden reversals.
- PMI Readings: Markets largely shrugged off mixed September PMI data, with the composite index easing but still signaling expansion.
SARACEN MARKETS VIEW
The dollar’s rebound looks tactical rather than structural. Until fiscal risks are resolved and inflation data provides clarity, rallies in the greenback may prove short-lived. Gold’s pause reflects positioning fatigue, but the metal remains primed for renewed upside if Friday’s PCE confirms disinflationary momentum. Traders should treat the coming sessions as a positioning phase rather than a conviction trade Powell’s caution and fiscal headwinds mean volatility remains the only certainty.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.