Gold prices rose in the European market on Monday at the start of the week, extending gains for the second consecutive day to break above the key psychological level of $3,600 per ounce for the first time in history, continuing to set fresh records, supported by the current weakness of the US dollar.

A series of weak US labor market data boosted the likelihood that the Federal Reserve will cut interest rates by 25 basis points next week, with rising expectations for a 50 basis-point cut.

Price Overview

• Gold prices today: Gold rose by 1.2% to $3,617.19, its highest level ever, from the opening level of $3,586.48, with a low of $3,579.72.

• At Friday’s settlement, gold gained 1.2% after weaker-than-expected US jobs data.

• Last week, gold rose by 4.05%, its third consecutive weekly gain and the largest since May, supported by accelerating safe-haven buying.

US Dollar

The dollar index fell by 0.2% on Monday, extending losses for the second session in a row, nearing a five-week low at 97.43 points, reflecting continued weakness of the greenback against a basket of major and minor currencies.

This decline followed a series of weak US labor market figures in August, which renewed concerns about the pace of growth in the world’s largest economy during the third quarter of this year.

US Interest Rates

• The US economy added fewer-than-expected jobs in August, with unemployment rising to 4.3% from 4.2% in July, the latest gloomy labor market data.

• Following the data, and according to the CME FedWatch tool: the probability of a 25 basis-point rate cut in September rose from 98% to 100%, while the odds of no change dropped from 2% to 0%. Expectations for a 50 basis-point cut increased from 0% to 10%.

• The probability of a 25 basis-point cut in October also rose from 99% to 100%, with odds of no change falling from 1% to 0%. Expectations for a 50 basis-point cut increased from 0% to 8%.

• To reaffirm these probabilities, investors await key US inflation data for August this week, ahead of the Federal Reserve meeting next week.

Outlook for Gold

Kyle Rodda, market analyst at Capital.com, said: “The main driver is US jobs data and the new possibility of a 50 basis-point Fed rate cut in September. It’s a slim chance, but it’s a major shift from before the jobs data.”

He added: “Basically, all the favorable factors are supporting gold right now. Despite awaiting inflation data this week, we’ll see strong attempts to push past $3,600.”

SPDR Gold Trust

Holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Friday, with the total remaining at 981.97 metric tons.

The euro declined at the opening of the European market on Monday against a basket of global currencies, moving away from its five-week high versus the US dollar, as profit-taking and correction activity gathered pace, alongside risk aversion ahead of an important political vote in France, the eurozone’s second-largest economy.

Later today, markets will turn their focus to the confidence vote for French Prime Minister François Bayrou in parliament, with strong expectations that he will fail to secure it, leading to the government’s collapse and exacerbating political uncertainty in France.

Price Overview

• Euro exchange rate today: the euro fell against the dollar by 0.15% to $1.1703, from Friday’s close at $1.1718, and recorded its highest level during today’s session at $1.1720.

• The euro ended Friday’s session up 0.6% against the dollar, reaching a five-week high at $1.1759, supported by bleak US labor market data.

• Over the past week, the euro rose 0.3% against the dollar, marking its fourth weekly gain in the last five weeks, amid reduced expectations of a European rate cut.

Vote on Bayrou’s Government

Later today, markets will focus on the confidence vote for Prime Minister François Bayrou, which is strongly expected to fail. This comes after weeks of political unrest and divisions within the French parliament, where Bayrou and his government lack the majority needed to pass laws consistently.

The government’s collapse would likely deepen political uncertainty in France, the eurozone’s second-largest economy, especially given current economic pressures such as slowing growth, rising unemployment, and ongoing debates over fiscal and tax reforms.

Investors also fear that any prolonged political crisis could hinder coordination with Brussels on spending and fiscal discipline policies, adding further pressure on the euro and sparking volatility in European bond markets.

Possible Scenarios

Analysts believe Bayrou’s failure in the confidence vote could open the door to two main scenarios: either the government resigns and a new coalition is formed, or, if that proves impossible, the French president may be forced to consider dissolving parliament and calling early elections — a scenario that could heighten instability.

European Interest Rates

• Data released last week showed an unexpected rise in core inflation in the eurozone during August, highlighting persistent inflationary pressures on the European Central Bank.

• Following this data, pricing for a 25-basis-point ECB rate cut in September dropped from 30% to 10%.

• Five sources told Reuters that the ECB is likely to keep rates unchanged at this week’s meeting, but discussions about further cuts could resume in the fall if the eurozone economy weakens.

The Japanese yen fell broadly in Asian markets on Monday at the start of the week against a basket of major and minor currencies, as selling pressure on the yen accelerated following Prime Minister Shigeru Ishiba’s announcement of his resignation in a press conference, stepping down from leadership of the ruling party, adding to political uncertainty in the world’s fourth-largest economy.

The end of Ishiba’s short tenure, which lasted less than a year, leaves markets cautiously awaiting the direction of Japan’s next government. Until a new leader of the Liberal Democratic Party is elected, uncertainty will continue to dominate the outlook for the country’s fiscal and monetary policies.

Price Overview

• Yen exchange rate today: the dollar rose against the yen by about 0.85% to ¥148.58, from Friday’s close at ¥147.35, and recorded a low of ¥147.91 during today’s session.

• The yen ended Friday’s session up about 0.8% against the dollar, marking a one-week high at ¥146.82, after bleak US labor market data strongly boosted expectations of at least two Federal Reserve interest rate cuts before year-end.

Ishiba’s Resignation

Prime Minister Shigeru Ishiba announced his resignation in a press conference on Sunday, after the ruling Liberal Democratic Party (LDP) suffered stinging electoral defeats recently that cost it a majority in both houses of parliament.

Ishiba explained that he chose the timing of his resignation after concluding a tariff-reduction agreement with the United States, which he described as a “national achievement,” calling it the “right moment” to step down and pass leadership to a new generation.

Political Uncertainty

Undoubtedly, Ishiba’s resignation will usher Japan into a new phase of political and economic instability at a time when it faces both domestic and external challenges, such as rising costs, escalating regional tensions, and global financial headwinds.

New Leadership

Ishiba confirmed he would continue his duties until a new party leader is elected, with the race now more open than ever. Names such as Sanae Takaichi, Shinjirō Koizumi, and Yoshimasa Hayashi are emerging as the top contenders to succeed him.

According to news reports, the party leadership election is expected to be held in October, amid an urgent need to restore internal stability and chart a new course for the post-Ishiba era.

Opinions and Analysis

• Carol Kong, currency strategist at Commonwealth Bank of Australia in Sydney: “Markets are worried that the next party leader will push for more fiscal expansion. Bottom line: the yen will remain under pressure in the near term.”

• Charu Chanana, chief investment strategist at Saxo: “With the LDP lacking a clear majority, investors will stay cautious until a successor is confirmed, keeping volatility high across yen, bonds, and equities.”

• Chanana added: “In the short term, this points to a weaker yen, a higher premium on Japanese government bonds, and a two-way flow in equities until the ruling party’s leadership outlook becomes clearer.”

• Hirofumi Suzuki, senior currency strategist at SMBC, on the Bank of Japan’s next step: “The probability of another rate hike in September was never high to begin with, and September will likely be a wait-and-see month.”

Sanae Takaichi

Investors are focusing on the possibility that Ishiba could be replaced by a figure supportive of easier fiscal and monetary policies, such as LDP veteran Sanae Takaichi, who has criticized the Bank of Japan’s rate hikes.

Ethereum prices rose during Friday’s trading amid strong demand for high-risk assets, particularly cryptocurrencies, following weak US employment data that reinforced expectations of the Federal Reserve resuming rate cuts at its upcoming meeting this month.

Data released Friday by the US Department of Labor showed the economy added only 22,000 jobs in August, compared with expectations of 75,000, marking a very negative report.

The data also revealed that the US unemployment rate rose to 4.3% in August, in line with analysts’ expectations.

Following this release, market bets increased that the Federal Reserve will cut rates at this month’s meeting, with the probability of a rate cut climbing to about 98%, according to the CME FedWatch tool.

Ethereum

As for trading, Ethereum rose 0.7% to $4,330.5 at 21:15 GMT.