Dollar Weakens Across the Board: Gold and EURUSD get Benefit.
EURUSD pair has soared to levels not seen since November 2021, breaching the key 1.1600 barrier. The financial markets are witnessing a compelling shift in sentiment as the US Dollar (USD) slides amid weakening inflationary pressures and escalating geopolitical and trade risks. This environment is proving favorable for traditional safe-haven assets like gold and alternative currencies such as the euro. Gold prices have flatlined just below a one-week high, maintaining their bullish tone.
The driving forces behind this tandem move are a confluence of softer-than-expected US Consumer Price Index (CPI) data, renewed US trade threats, and hawkish messaging from European Central Bank (ECB) officials. Market participants are increasingly betting that the Federal Reserve will be the first among major central banks to ease policy further, potentially as soon as September.
Let’s unpack the macroeconomic and geopolitical backdrop fueling these market moves and examine what lies ahead for both gold (XAUUSD) and the euro-dollar pair (EURUSD).
Gold Consolidates Below $3,340: Calm Before the Breakout?
Gold prices (XAU/USD) continue to attract dip-buyers after a sharp intraday retracement to the $3,338 region during the early European session on Wednesday. The metal, which had earlier flirted with a one-week high, managed to recover ground as fresh uncertainties around global trade and geopolitics weighed on broader risk appetite.
Although the initial optimism stemming from improved US-China trade relations offered a brief reprieve to risk assets, that was quickly overshadowed by US President Donald Trump’s renewed tariff threats, once again jolting market confidence. Trump’s announcement that he intends to send letters to US trade partners within two weeks—outlining unilateral tariff measures unless favorable deals are struck—sent risk-off signals rippling across global markets.
Safe-Haven Demand Anchors Gold
Adding fuel to gold’s rally is the rising geopolitical instability, particularly in the Middle East. The US Embassy in Baghdad ordered the departure of non-essential personnel amid rising regional tensions. This followed threats from Iran’s Defense Minister, Aziz Nasirzadeh, promising retaliatory strikes against US bases if conflict erupts over its nuclear program. Simultaneously, Russia stepped up airstrikes on Ukraine’s second-largest city, Kharkiv, in what it described as retaliation for recent Ukrainian drone attacks.
Such geopolitical tailwinds reinforce gold’s safe-haven appeal and help cushion the metal against any profit-taking or technical retracements.
CPI Miss Reinforces Fed Rate Cut Bets
A major catalyst behind both gold’s resilience and the euro’s strength is the soft May CPI report, which has further entrenched market expectations of a US rate cut.
The US headline CPI rose by just 0.1% month-on-month and 2.4% annually, falling short of the expected 0.2% and 2.5%, respectively. Even more telling, the core CPI—which excludes volatile food and energy prices—stayed unchanged at 2.8% year-on-year, also below the 2.9% forecast.
As a result, Fed rate cut probabilities have surged. According to CME’s FedWatch tool, there is now a 70% chance of a rate cut in September, up sharply from just 50% a week ago. The 10-year US Treasury yields also pulled back in response, reinforcing the non-yielding appeal of gold.
Producer Price Index and Jobless Claims Awaited
Traders are now awaiting further confirmation of the cooling inflation trend from Thursday’s Producer Price Index (PPI) report and Weekly Initial Jobless Claims. A benign PPI print could solidify the case for a Fed cut and place additional downside pressure on the greenback. Expectations are for PPI to rise 0.2% month-on-month and 2.6% year-on-year, a rebound from April’s surprising -0.5% monthly decline.
Until then, gold looks likely to remain well-supported, especially as the macro and geopolitical landscape continues to deteriorate.
EURUSD Breaches 1.1600: The Return of Euro Strength
While gold consolidates gains, the euro has gone on the offensive, breaking decisively above the psychological 1.1600 barrier for the first time since November 2021. The EURUSD pair has appreciated nearly 0.9% against the USD, making the euro the strongest major currency in Thursday’s session.
Behind the euro’s ascent is a combination of a falling dollar, rising ECB credibility, and investor optimism about Eurozone economic stabilization.
Trump’s Trade Threats Roil Dollar Sentiment
The dollar’s slide has accelerated following President Trump’s surprise announcement of pending tariffs. The market had been tentatively optimistic after signs of progress in the latest US-China trade talks in London, but Trump’s unilateral tariff rhetoric has reignited fears of a global trade breakdown.
Trump’s deadline of July 9 is now a key risk event for markets. His statement that he would impose tariffs on countries that fail to comply with US trade proposals within that window is being interpreted as a renewed America-first offensive, unsettling investors and diminishing demand for dollar-denominated assets.
ECB’s Hawkish Tone Fuels EURUSD Momentum
In stark contrast to the Fed’s dovish tilt, ECB officials are sounding increasingly hawkish. On Thursday, ECB Governing Council member Isabel Schnabel reiterated that the ECB’s tightening cycle is nearly complete and that inflation has stabilized near the 2% target. President Christine Lagarde’s earlier comments also echoed a confidence in the Eurozone’s resilience, reinforcing bets that the ECB may stay on hold for longer than the Fed.
The resulting monetary policy divergence is strengthening the euro’s appeal—especially among investors seeking yield stability and inflation protection amid rising global uncertainties.
Heatmap Confirms Dollar’s Broad Weakness
The USD is underperforming across the board:
- It is down 0.86% against the euro,
- 0.56% against the yen,
- 0.67% against the Swiss franc, and
- 0.41% against the New Zealand dollar.
This broad-based decline reinforces that the “Sell America” narrative is gaining traction in FX markets.
Technical Outlook: Is 1.1700 in Sight for EURUSD?
From a technical perspective, EUR/USD’s breach above 1.1575 (YTD high) has opened the door toward 1.1700, a level not seen since early 2021. If the pair can sustain above 1.1600 in the coming sessions, it may validate a longer-term bullish breakout.
Key resistance lies at:
- 1.1640 – November 2021 swing high
- 1.1700 – Psychological round number
- 1.1765 – 2021 mid-year pivot
Support levels include:
- 1.1575 – Former resistance, now turned support
- 1.1520 – Short-term moving average
- 1.1450 – Weekly breakout base
Conclusion: The Macro Winds Favor Euro
A convergence of weakening US inflation, renewed tariff risks, geopolitical instability, and monetary policy divergence is tilting the scales in favor of gold and the euro.
While gold benefits from safe-haven flows and lower yields, the euro is capitalizing on central bank divergence and dollar weakness. As long as the Federal Reserve remains dovish and inflation continues to surprise to the downside, both assets appear poised for further upside—especially if Trump’s trade rhetoric escalates into full-blown policy action ahead of the July 9 tariff deadline.
