US dollar index and gold analysis after Fed rate hike

Following the US Federal Reserve’s decision to hike its interest rate by 50-basis points, the US dollar index (DXY) sharply declined, breaking its recent support at 103.00.

In the days and weeks leading up to the decision, the USD dollar has been on a tear against its major partners, helping the dollar index reach 20-year highs, just below the 104.00 level.

The Fed’s May rate hike is the largest it has implemented in 22 years and its second consecutive rate hike, bringing its rate to 1.00%. At the same time, Fed Chair Jerome Powell indicated that the chance for a 75-basis points hike is unlikely for the June’s meeting, which may have dampened enthusiasm for the USD. However, the long-term uptrend could still be intact.

As it stands, the US dollar index is at 102.50. Some of the pairs causing the largest dent to the index is the AUDUSD (up by 2.2%), the NZDUSD (up by 1.7%), and the GBPUSD (up by 1.0%).


In the gold market, the direction has been more positive.

XAUUSD has bounced back after the news of the US Federal Reserve’s decision. However, the trader-favourite commodity has found resistance at $1,890. It may be safe to call the $1,900 level a bridge too far for gold this week, as the hawkishness of the Fed in subsequent meetings is being called into question and the retreat of bond yields provides only limited upside for gold.

In upcoming news, the Non-Farm Payrolls (NFP) report is due at the end of this week. The NFP report, combined with some residual turbulence from the Fed’s rate decision, could cause a stirring in gold.

A short-term outcome for XAUUSD maybe a consolidation between the $1,890 and $1,880.


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