Gold Recovers, USDX Stabilizes amid Hawkish Fed and Strong PMI Support

EUR/USD extended its decline for a second consecutive session, falling 0.40% and slipping below the 1.1800 level as renewed demand for the US Dollar weighed on the shared currency. The pair remains under pressure following last Friday’s sharp sell-off in metals, which triggered safe-haven flows into the Greenback, alongside upbeat US economic data and rising expectations around future Federal Reserve leadership.

Expectations for near-term Federal Reserve rate cuts have faded further following the release of strong US economic indicators. The Institute for Supply Management (ISM) reported that manufacturing activity returned to expansion in January, reinforcing the view that the Fed may keep rates higher for longer.

Meanwhile, the partial US government shutdown is expected to delay the release of key labor-market data, including the Job Openings and Labor Turnover Survey (JOLTS), Initial Jobless Claims, and the January Nonfarm Payrolls report, despite Congress having approved a funding package.

In the Eurozone, data showed modest improvement. German Retail Sales rose slightly, while the HCOB Manufacturing PMI increased in January but remained in contractionary territory, limiting any upside for the euro.

Looking ahead, the Eurozone calendar includes the ECB Lending Survey, inflation figures, Retail Sales data, and the European Central Bank’s monetary policy meeting.

In the US, attention will turn to the ADP Employment Change report, S&P Global and ISM Services PMIs, and speeches from Federal Reserve officials later this week.

Gold prices rebounded sharply on Tuesday, recovering from their steepest two-day decline after the nomination of Kevin Warsh as the next US Federal Reserve chair and higher margin requirements from CME Group curbed the metals’ record-breaking rally.

Gold’s recent parabolic surge saw the metal gain nearly 13% in January—its strongest monthly performance since November 2009—while silver reached an all-time high of $121.64 last Thursday.

According to analysts, the sell-off was sparked by shifting expectations around US monetary policy. Markets viewed Warsh’s nomination by President Donald Trump as a signal of policy credibility, prompting a stronger US Dollar and triggering profit-taking across precious metals. “That move in the dollar was effectively the pin that popped the precious metals rally,” Rodda noted.

Further pressure came from CME Group’s decision to raise margin requirements on precious metals futures, amplifying last week’s sharp liquidation.

Despite the historic pullback, analysts remain constructive on the medium-term outlook for bullion, with expectations that gold and silver could reach fresh record highs later this year.

Separately, the US Bureau of Labor Statistics confirmed on Monday that the closely watched January employment report will not be released this Friday due to the ongoing partial government shutdown.

Oil prices edged lower for a second consecutive session early on Tuesday, as investors assessed signs of a potential de-escalation in US–Iran tensions while a firmer US Dollar added further downside pressure to prices.

The latest losses follow a sharp sell-off on Monday, when oil prices fell more than 4% after US President Donald Trump said Iran was “seriously talking” with Washington, signaling a possible easing of geopolitical tensions involving the OPEC member.

Iran and the United States are expected to resume nuclear negotiations on Friday in Turkey, officials from both sides told Reuters. Trump cautioned that failure to reach an agreement could have serious consequences, noting that US warships were heading toward the region.

Iranian President Masoud Pezeshkian said on Tuesday that talks with Washington should continue to protect Iran’s national interests, provided that “threats and unreasonable expectations” are avoided.

Adding to the pressure, the US Dollar Index hovered near its highest level in more than a week. A stronger dollar typically weighs on demand for dollar-denominated commodities by making them more expensive for foreign buyers.

On the trade front, Trump announced a deal with India that would cut US tariffs on Indian goods to 18% from 50% in exchange for India halting purchases of Russian oil and reducing trade barriers. The agreement was revealed after a call with Indian Prime Minister Narendra Modi, with Trump also noting that India had agreed to buy oil from the US and potentially from Venezuela.

US equities closed higher on Monday, supported by gains in defensive consumer staples, as investors looked past a continued sell-off in precious metals and turned their attention to trade developments after President Donald Trump announced a deal with India.

Investor focus shifted to trade after Trump said he had reached an agreement with Indian Prime Minister Narendra Modi. Posting on Truth Social, Trump said discussions covered trade and efforts to end the war between Russia and Ukraine.

According to Trump, India agreed to halt purchases of Russian oil and instead buy more crude from the United States and potentially Venezuela—an issue that had been a major sticking point in US–India trade negotiations.

Attention also turned to Washington, where media reports said the US Bureau of Labor Statistics had delayed the release of the January employment report due to a partial government shutdown.

Earnings season continues at pace this week. Walt Disney beat revenue and earnings expectations for the December quarter but saw its shares slide after warning of weaker international visitor numbers. The company is expected to name a successor to CEO Bob Iger later this year, with Disney Experiences chairman Josh D’Amaro widely seen as the leading candidate.