The US Dollar Index (DXY) maintained its position comfortably above 108.00 on Tuesday morning, following a modest increase on Monday. The cautious market sentiment contributed to the USD's strength, causing a slight intraday profit-taking around the XAU/USD pair. As investors await Federal Reserve Chairman Jerome Powell's testimony before Congress, a potential for heightened market volatility looms on the horizon. The absence of high-impact economic data releases further amplifies the focus on Powell's remarks, which historically have had a positive impact on the US Dollar's value.
On Monday, the US Dollar posted small gains against its major rivals, reinforcing its standing in early Tuesday trading. The GBP/USD recorded losses for the third consecutive day, while the EUR/USD ended the first trading day of the week marginally lower. Amidst these currency fluctuations, XAU/USD retained its bullish momentum during Asian trading hours, setting a new all-time high above $2,940. However, the pair retracted during the European morning session, though it remained above $2,900, signaling continued investor interest in gold.
In contrast to the Euro's struggle near 1.0305 in Tuesday's early European session, USD/JPY corrected higher on Monday after a sharp decline last week and stabilized near 152.00 on Tuesday. These movements reflect the broader cautious sentiment permeating the markets as traders brace for Powell's testimony.
Powell's upcoming appearance before Congress is pivotal, given the Federal Reserve's dual mandate to achieve price stability and foster full employment. His testimony is expected to provide insights into the Fed's future monetary policy actions, including their stance on quantitative tightening (QT). QT signifies the reverse of quantitative easing (QE), where the Fed ceases bond purchases from financial institutions and refrains from reinvesting principal from maturing bonds into new ones. This policy shift could potentially influence the USD's trajectory and market dynamics.
Meanwhile, former President Donald Trump has indicated that his administration will explore tariffs on automobiles, microchips, and pharmaceuticals. This announcement adds another layer of complexity to the current economic landscape, potentially impacting global trade and currency valuations.
Gold prices continued their ascent beyond $2,900 on Tuesday, reaching a fresh all-time peak. This surge is attributed to the persistent demand for safe-haven assets amid economic uncertainties and geopolitical tensions. Despite some profit-taking, gold remains an attractive investment option for those seeking stability in volatile market conditions.
The markets remain attentive to Powell's congressional testimony, as his statements could significantly sway investor sentiment and influence currency movements. Historically, Powell's remarks have provided valuable indicators of the Fed's policy direction, often affecting the USD positively.