Euro Falls as US Dollar gains on inflation concerns, Fed rate hike bets

Gold experienced a brief recovery on Friday, briefly surpassing the $3,900 level after a three-day decline to its lowest point since late September. The US Dollar (USD) offered support during this period, as it benefited from the Federal Reserve's anticipated rate hikes and geopolitical tensions. However, the US Federal Reserve's (Fed) expectations of further rate increases and Middle East uncertainties are likely to continue exerting downward pressure on the precious metal.

The recent surge in US consumer inflation data and remarks from Fed officials have fueled expectations of a more restrictive monetary policy, with traders pricing in a 25-basis-point (bps) rate hike by December and a 13% probability of a 50-bps increase. This, coupled with a rise in crude oil prices and a surge in US Treasuries yields, has further bolstered the USD.

Meanwhile, US President Donald Trump issued warnings to Iran and emphasized the US's unwillingness to negotiate a deal, adding to the geopolitical risks and supporting the USD outlook.

Looking ahead, the US Producer Price Index (PPI) and speeches from influential FOMC members will shape expectations about the Fed's policy. Additionally, geopolitical headlines are expected to introduce volatility and continue to drive demand for the USD. Despite these factors, the XAU/USD pair is expected to continue its weekly decline.

Currently, the technical setup for gold indicates a bearish bias, with the pair failing to break above the $4,150 resistance level and falling below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Momentum indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), also suggest that downside pressure remains dominant.

The near-term bearish outlook for gold is further reinforced by the recent breakdown of crucial support levels and the weak momentum indicators. To reverse this bearish trend, gold would need to break above the $3,960 area, followed by a rise above the $4,000 psychological level and the 100-period EMA at $4,037.06. If the pair sustains an upward move beyond these barriers, it could potentially open the door for a broader corrective rebound towards the $4,100 round figure and the $4,150 barrier.

Conversely, a breach of the $3,865-$3,855 range, which marks the year-to-date low, could act as an interim demand area and trigger further losses.