On Monday, the US Dollar (USD) gained momentum, driven by a surge in US Treasury yields and persistent safe-haven demand, which weighed heavily on both Gold (XAU/USD) and the Japanese Yen (JPY) [1][2][3]. Gold prices stalled below the $4,150 mark, trading at $4,132 and down 0.27% on the day, as the US Dollar Index (DXY) rose 0.25% to 102.17, and the US 10-year Treasury yield climbed six basis points to 5.341% [1][3]. The strong US Dollar and elevated yields undermined gold's appeal, despite investors pricing out a Federal Reserve (Fed) rate hike for October and trimming hawkish bets after softer-than-expected US employment data [1][2].
The ISM Services PMI for September declined slightly from 55.4 to 54.9, missing expectations, while input costs rose more than forecast, with prices paid increasing from 72.6 to 74 [1][2]. The final S&P Global Services PMI was revised up to 58.8, and the Composite PMI was confirmed at 58.4 [2]. Money markets now price a nearly 77% chance that the Fed will hold rates steady in October, but the probability of a December hike stands at 88% according to Prime Terminal data [1]. The CME FedWatch Tool shows a 21% probability of an October rate hike, down from 70% a week ago [2]. Investors are awaiting the FOMC meeting minutes on Wednesday for further guidance [1][2].
The Japanese Yen weakened against the US Dollar, with USD/JPY trading around 158.10, up 0.17% on the day [2][3]. The yield gap between US and Japanese 10-year bonds widened to 224 basis points, as the US yield held near 5.34% and Japan's yield reached 3.10%, its highest in about 30 years [2]. Despite the Bank of Japan's tightening stance, the Yen remains vulnerable due to Japan's heavy debt burden, low interest rates, and high oil prices [2]. Japanese Prime Minister Sanae Takaichi reassured investors about controlling annual debt issuance, while traders remain cautious as USD/JPY approaches the 160.00 level, where intervention risk increases [2].
Technical analysis for gold suggests further downside, with the Relative Strength Index (RSI) nearing oversold territory and support levels at $4,100 and $4,000 in focus [1]. For a bullish reversal, gold would need to break above $4,200 and key moving averages [1]. Meanwhile, market participants are also monitoring upcoming US economic data releases and central bank commentary for further direction [1][2][3].
CONCLUSION
The surge in US Treasury yields and a stronger US Dollar have exerted significant downward pressure on both gold and the Japanese Yen, with gold prices hovering just above $4,100 and USD/JPY trading above 158. Market participants are closely watching upcoming FOMC minutes and central bank speeches for further policy signals. The prevailing sentiment remains cautious, with risks skewed toward continued USD strength and further downside for gold and the Yen.