Gold Nears $5,100 as Geopolitical Risk Weighs on USDX and Fed Outlook

The EUR/USD pair trades with a firmer tone near 1.1830 during the early European session on Wednesday, extending gains above the 1.1800 level. However, upside momentum may remain capped as market participants reassess recent developments in the United States and shifting expectations around Federal Reserve policy.

The US Dollar has found some support after a partial government shutdown was swiftly resolved. According to the BBC, US President Donald Trump signed legislation on Tuesday to end the shutdown that began over the weekend, following a narrow approval in the House of Representatives. In addition, Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair has eased some concerns surrounding fiscal uncertainty and the central bank’s independence, lending modest support to the Greenback.

Later in the session, investors will closely monitor the preliminary release of the Eurozone Harmonized Index of Consumer Prices (HICP), which could influence near-term euro price action.

Attention will also turn to the European Central Bank’s policy meeting on Thursday. The ECB is widely expected to keep interest rates unchanged at its first meeting of the year, marking a fifth consecutive hold. Market focus will center on President Christine Lagarde’s press conference for signals on the future policy path.

Gold prices remain supported during the early European session on Wednesday underpinned by renewed safe-haven demand and persistent expectations that the Federal Reserve will move toward lower interest rates.

Risk sentiment deteriorated after reports emerged overnight that a US Navy fighter jet shot down an Iranian drone in the Arabian Sea. The incident has reignited concerns over escalating tensions between Washington and Tehran, prompting investors to seek refuge in traditional safe-haven assets such as gold.

Further support comes from a softer US Dollar, as markets continue to price in additional Fed rate cuts this year. Expectations of lower borrowing costs have limited the Greenback’s recent rebound from a four-year low, benefiting the non-yielding yellow metal.

Market participants are now awaiting key US macroeconomic data for fresh direction, including the ADP private-sector employment report and the ISM Services Purchasing Managers’ Index (PMI), both due later on Wednesday.

Political developments have also influenced market sentiment. President Donald Trump on Tuesday signed a spending bill restoring funding for several federal agencies and temporarily extending Department of Homeland Security financing until mid-February, bringing an end to the recent partial government shutdown.

With the US Nonfarm Payrolls report for January postponed, attention remains firmly on Wednesday’s data releases, which could provide fresh insight into labor market conditions and short-term price direction for gold.

Oil prices surged on Tuesday, driven by escalating geopolitical tensions between the United States and Iran and signs of tighter supply conditions in the US market.

Market sentiment was boosted by reports of renewed friction between Washington and Tehran. Overnight, the US reportedly shot down an Iranian drone that was approaching a US aircraft carrier in the Arabian Sea. In a separate incident, Iranian gunboats were seen maneuvering near a US-flagged oil tanker in the Strait of Hormuz—one of the world’s most critical oil transit routes.

These developments come just ahead of planned nuclear talks between the two countries later this week. However, uncertainty surrounds the negotiations after Iranian officials signaled that discussions scheduled for Friday should be limited strictly to nuclear issues, raising doubts over whether broader dialogue will proceed. President Donald Trump has warned of further military action if Iran fails to curb its nuclear ambitions, while Tehran has threatened strong retaliation against any US aggression.

Oil markets also drew strength from industry data showing an unexpected and sizable drawdown in US crude inventories. Figures from the American Petroleum Institute indicated that inventories fell by 11.1 million barrels in the week ended January 30, sharply contrasting with market expectations for a 0.7 million-barrel build. The API report often foreshadows similar trends in official government data, which is due for release later on Wednesday.

The steep decline in stockpiles was attributed largely to extreme cold weather across parts of the US, which disrupted oil production and curtailed exports from the Gulf Coast.

US equities ended sharply lower on Tuesday as renewed concerns over intensifying competition driven by artificial intelligence weighed heavily on technology and software stocks. Investor caution intensified ahead of quarterly earnings reports from Alphabet and Amazon later this week.

Shares of major AI-linked companies retreated, with Nvidia and Microsoft each falling nearly 3%. In recent months, investors have grown more selective toward AI-related stocks, increasingly demanding tangible returns from companies’ substantial investments in the technology.

Market focus shifted toward software firms perceived to be vulnerable to margin pressure as AI capabilities expand. Sentiment was further dampened by Anthropic’s launch of a legal-focused tool for its Claude AI chatbot, reinforcing fears of disruption across the software landscape.

With roughly a quarter of S&P 500 companies scheduled to report results this week, analysts expect aggregate earnings to have risen nearly 11% in the December quarter, according to LSEG data—up from about 9% estimated at the start of January.

Meanwhile, US lawmakers moved closer to ending a partial government shutdown after legislation cleared a procedural vote in the House of Representatives, with a final vote expected later in the day. The shutdown has delayed the release of several key labor market indicators, including Friday’s jobs report and the JOLTS data originally scheduled for Tuesday.