Gold and Bitcoin Rally as Dollar Weakness Shapes Markets

EUR/USD is extending its gains for a third consecutive session, trading around 1.1680 during Asian hours on Friday. The Euro is finding support from resilient economic fundamentals across the Eurozone, while markets await the latest HCOB Purchasing Managers’ Index (PMI) data from Germany and the broader Eurozone for fresh directional cues.

The Euro is also benefiting from renewed inflation concerns as European natural gas prices surge amid supply disruptions linked to the Middle East. Persistent energy price pressures could strengthen the case for the European Central Bank to maintain its hawkish stance and continue raising interest rates through the year.

Recent German data reinforce the inflationary outlook. Producer prices rose 3.0% year-on-year in July, exceeding expectations for a 2.7% increase and marking the fastest annual growth since April 2023. Prices also rebounded 1.1% month-on-month, pointing to continued inflationary pressure in the region.

However, further EUR/USD gains could be limited by renewed strength in the US Dollar.

Federal Reserve’s Musalem maintained a broadly neutral policy stance but struck a hawkish tone on inflation risks. He described monetary policy and financial conditions as accommodative while warning that underlying inflation of 2.5%-3% remains too high.

Gold prices are holding above the $4,500-an-ounce level on Friday, keeping the precious metal on track for a third consecutive weekly gain. The rally has been supported by a weaker US Dollar and efforts by the US Treasury to contain longer-term Treasury yields, which have improved the appeal of non-yielding bullion.

The precious metal has held most of its recent gains after breaking decisively above $4,500, extending its recovery from the late-June low near $3,940. The move has been closely linked to developments in US bond markets after the Treasury announced plans to double its purchases of longer-dated Treasury securities to at least $4 billion per operation over the next quarter.

The Dollar’s weakness has provided an additional boost to gold as markets reassess the appeal of US assets amid rising fiscal concerns. Meanwhile, US labor data showed weekly jobless claims edging lower, suggesting that the labor market remains relatively resilient despite July’s unexpected employment decline. Moreover, geopolitical developments are adding another layer of support to the precious metal.

Oil prices were little changed on Friday but remained on track for a second consecutive weekly gain as the unresolved US-Iran conflict continued to disrupt crude supplies from the Middle East.

The rally has been driven by concerns that the ongoing conflict will keep supply from major producers, including Saudi Arabia, Iraq, the United Arab Emirates and Kuwait, constrained.

The latest peace agreement expired this week without either side showing willingness to resume negotiations, while US President Donald Trump threatened further economic retaliation against countries supporting Iran. The United Arab Emirates has also suspended financial and economic transactions with Iran, highlighting the escalating tensions between Tehran and a major Gulf oil producer.

Supply concerns have been reinforced by disruptions around the Strait of Hormuz, a critical route for global energy shipments. Only nine vessels transited the waterway on Wednesday, unchanged from the previous day and well below pre-war levels. Before the conflict began, the Strait of Hormuz handled volumes equivalent to around one-fifth of global oil consumption.

With the conflict showing little sign of a quick resolution and energy flows remaining disrupted, persistent supply risks are keeping upward pressure on crude prices and supporting expectations for further weekly gains.

Wall Street closed lower on Thursday as an initial rally in US Treasuries faded, while rising oil prices and renewed concerns over inflation weighed on market sentiment.

The bond market remained at the center of attention after the US Treasury announced plans to increase purchases of longer-dated government debt to at least $4 billion from $2 billion. The announcement initially pushed Treasury yields lower, with the 30-year yield falling 9.1 basis points and the 10-year yield declining 5.3 basis points.

However, the bond rally proved short-lived as traders resumed selling on Thursday. The 30-year yield climbed 5.6 basis points to 5.250%, with concerns over US fiscal conditions resurfacing after total government debt surpassed $40 trillion.

Investors were also digesting the Federal Reserve’s July meeting minutes, which showed that many policymakers could support rate hikes if inflation fails to ease. Most officials backed the decision to keep rates unchanged in July, while several policymakers warned that inflation risks remained tilted to the upside.

The minutes also highlighted concerns that the renewed conflict in the Middle East could prolong supply-chain disruptions and increase inflationary pressures.

Corporate earnings added further pressure to equities. Walmart shares fell 9.48% after the retailer reported its weakest US comparable-sales growth in six years, missing market expectations.