Gold prices declined in European markets on Friday, resuming losses that had paused the previous day, and are on track to test a four-week low. The metal is heading for a third consecutive weekly loss due to the strong performance of the US dollar against a basket of major currencies.

The drop comes in the wake of a more hawkish-than-expected Federal Reserve policy meeting, which reduced the likelihood of a rate cut in September. Markets now await the release of the US nonfarm payrolls report later today to reassess the Fed’s next steps.

Price Overview

Gold fell by 0.25% to $3,281.84 an ounce, down from the session’s opening at $3,289.84. The intraday high stood at $3,300.41. On Thursday, gold rose 0.45%, rebounding from a four-week low of $3,268.89.

For the month of July, gold lost around 0.4%, marking its first monthly decline of 2025, driven by reduced safe-haven demand and profit-taking from record highs.

Weekly Performance

Gold is down approximately 1.7% so far this week, on pace for a third straight weekly loss.

US Dollar Strength

The dollar index rose 0.1% on Friday, extending gains for a seventh consecutive session to reach a two-month high of 100.16. The rally reflects ongoing dollar strength amid reduced recession fears in the US, following recent trade deals with Japan and the EU, and stronger economic data.

Federal Reserve Outlook

As expected, the Fed left interest rates unchanged on Wednesday, holding the target range at 4.25%–4.50% for the fifth straight meeting.

The Fed stated that inflation and unemployment risks remain elevated amid economic uncertainty. Fed Chair Jerome Powell remarked that future policy steps will likely remain neutral and noted potential inflationary effects from new tariffs.

Interest Rate Expectations

According to CME’s FedWatch tool, the probability of a 25 basis point cut in September dropped from 64% to 43% following the Fed meeting. Odds of holding rates steady rose from 34% to 57%.

Expectations for a rate cut in October also fell—from 78% to 64%—while chances of no change increased to 36%. Traders now anticipate only about 35 basis points in total easing by year-end, down from prior estimates.

Jobs Report in Focus

Markets await the July nonfarm payrolls report at 13:30 GMT for fresh guidance on rate policy. Forecasts point to 106,000 new jobs versus 147,000 in June, with unemployment expected to rise to 4.2% from 4.1%. Average hourly earnings are seen increasing 0.3%, up from 0.2% last month.

Outlook for Gold

Marex analyst Edward Meir noted that gold has been trading between $3,250 and $3,450 for nearly two months, and may now breach the lower bound due to dollar strength fueled by the Fed’s hawkish stance.

He added that failure to renegotiate tariffs could reignite trade tensions and lift gold prices again. However, FX News Today expects that stronger-than-expected jobs data would further lower rate-cut odds and potentially push gold below $3,250 an ounce.

SPDR Gold Trust Holdings

Holdings in SPDR Gold Trust, the world’s largest gold-backed ETF, fell by 0.86 metric tons on Thursday—marking a second consecutive daily decline—to 954.51 metric tons, the lowest level since July 21.

Preliminary estimates released Friday morning by Eurostat showed that the Eurozone's annual Consumer Price Index (CPI) rose by 2.0% in July, surpassing market expectations of a 1.9% increase and matching the previous reading of 2.0%.

Excluding food and energy, core CPI rose by 2.3%, in line with market forecasts and unchanged from the previous reading.

These figures highlight persistent inflationary pressures facing European Central Bank policymakers, reducing the likelihood of a 25-basis-point rate cut in September.

The euro rose in European markets on Friday against a basket of major currencies, extending its recovery for a second consecutive session after hitting a two-month low versus the US dollar. The gains were driven by dip-buying at lower levels.

This rebound comes ahead of the release of key eurozone inflation data for July, which is expected to shed more light on whether the European Central Bank (ECB) will raise interest rates in September.

Despite the current uptick, the single European currency remains on track for its steepest weekly loss since 2022 due to strong opposition from France and Germany against the recent US–EU trade agreement.

Price Overview

• EUR/USD rose by 0.15% to $1.1429, up from the day’s opening price of $1.1412, after hitting an intraday low of $1.1405.

• On Thursday, the euro gained 0.1% — its first daily gain in six sessions — recovering from a two-month low of $1.1400.

• Over the month of July, the euro fell 3.2% against the dollar, marking its first monthly loss since December 2024. The decline was driven by profit-taking from the 4-year high at $1.1830, along with fears that the new US–EU trade deal could spark an economic slowdown in the eurozone.

ECB Interest Rate Outlook

• The ECB kept its key interest rates unchanged at 2.15% last week — the lowest level since October 2022 — following seven consecutive rate cuts.

• The bank opted to pause its monetary easing cycle, awaiting more clarity on future US–EU trade relations.

• ECB President Christine Lagarde stated after the meeting: “We are in a wait-and-see mode,” and added that the eurozone economy has shown resilience despite global uncertainties.

• According to Reuters sources, a clear majority of ECB members preferred to keep rates unchanged at the upcoming September meeting — which would mark a second consecutive pause.

• On Thursday, German inflation figures came in higher than expected for July, potentially signaling renewed inflationary pressures that could influence ECB policy.

• Current money market pricing suggests less than a 30% chance of a 25 basis point rate cut by the ECB in September.

Eurozone Inflation Data

To reassess the policy outlook, investors are now awaiting July’s inflation figures, due at 10:00 GMT.

Market expectations are for headline annual CPI to slow to 1.9% in July from 2.0% in June, while core CPI is expected to remain steady at 2.3%.

Euro Outlook

• At Economies.com, we expect that if today’s inflation figures exceed market forecasts, the odds of a September rate cut by the ECB will fall further, potentially boosting euro exchange rates in the forex market.

Weekly Performance

So far this week, the euro is down approximately 2.65% against the US dollar, on track for its third weekly loss this month and the sharpest weekly drop since September 2022.

US–EU Trade Agreement

At their meeting in Scotland on Sunday, US President Donald Trump and European Commission President Ursula von der Leyen announced a new trade deal that includes:

• A 15% US tariff on European imports — including cars, pharmaceuticals, and semiconductors — starting August 1.

• A selected group of US goods will be fully exempt from EU tariffs under a “no quid pro quo” framework, including aircraft parts, semiconductor tools, some generic drugs, chemicals, and strategic agricultural products.

• Steel and aluminum tariffs will remain at 50% for now, with potential future replacement by a quota system.

• The EU committed to investing up to $600 billion in the US economy during Trump’s second term.

• The EU also pledged to purchase $750 billion in US energy products — including LNG and nuclear coal — over the next three years.

• Trump stated that the deal aims to reduce the US trade deficit with the EU, which reached $235.6 billion in 2024.

• Von der Leyen described the agreement as bringing “stability and predictability” to both sides and emphasized the goal of “rebalancing” trade relations.

European Reactions

On Monday, France labeled the trade agreement a “black day” for Europe, accusing the EU of caving to Trump in an unbalanced deal.

German Chancellor Friedrich Merz warned that the tariffs would cause “severe” damage to the German economy.

The Japanese yen fell further in Asian markets on Friday, extending losses for a third consecutive day against the US dollar and reaching its lowest level in four months. The currency dropped below the key psychological barrier of 150 yen per dollar, nearing its steepest weekly loss in 2025.

Japanese authorities expressed concern about recent forex movements, although Bank of Japan Governor Kazuo Ueda downplayed the direct impact of yen levels on inflation expectations.

Meanwhile, the US dollar continued to strengthen against a basket of global currencies ahead of the release of US nonfarm payrolls data, which may provide further clues about the likelihood of a Federal Reserve rate cut in September.

Price Overview

• USD/JPY rose 0.15% to ¥150.92 — the highest since March 28 — up from the session open at ¥150.72, after hitting an intraday low of ¥150.60.

• On Thursday, the yen dropped 0.85% against the dollar following stronger-than-expected US PCE inflation data.

• For July, the yen declined 4.8% against the dollar — its worst monthly performance in 2025, and the sharpest drop since December 2024 — amid easing demand for the currency as a safe haven, progress in US trade negotiations, and political uncertainty in Japan following the ruling party's Senate election defeat.

Weekly Performance

For the week ending today, the yen is down approximately 2.2% against the US dollar and is on track for its third weekly loss this month and its worst weekly drop in 2025 since early December 2024.

Bank of Japan

• As expected, the Bank of Japan on Thursday left its policy settings unchanged, maintaining interest rates at 0.50% — the highest since 2008 — for the fourth consecutive meeting.

• In its policy statement, the BoJ signaled it would consider a rate hike if economic and price conditions align with projections.

• The central bank raised its FY2025 core CPI forecast from 2.2% to 2.7%, adjusted FY2026 expectations from 1.8% to 1.7%, and lifted its FY2027 projection from 1.9% to 2.0%.

• Governor Ueda said the recent US–Japan trade agreement was a "significant step forward" in reducing uncertainty and supporting economic stability.

• Market pricing reflects a 50% probability that the BoJ will raise rates by 25 basis points in its September meeting. Investors await further inflation, employment, and wage data from Japan to reassess the outlook.

Japanese Authorities

Finance Minister Katsunobu Kato reiterated concerns over recent forex volatility, particularly after the yen hit a 4-month low. In a Friday press conference, he emphasized the importance of stable exchange rates reflecting fundamentals and warned of speculative-driven movements.

Governor Ueda echoed this sentiment on Thursday, saying that current exchange rate levels are unlikely to have a significant direct impact on inflation projections.

US Dollar

The US Dollar Index rose 0.1% on Friday to 100.15, marking its seventh straight gain and the highest level in two months, reflecting continued strength in the greenback against major currencies.

This rally comes amid fading recession fears in the US, bolstered by recent trade agreements with Japan and the EU, and diminishing expectations for a September rate cut as strong economic data and a hawkish Fed weigh on market sentiment.

Investors are now focused on July’s US jobs report due later today, a key metric for the Fed’s upcoming policy decisions.

Economies.com Outlook

• We at Economies.com expect the yen to remain under pressure against the US dollar, particularly if the upcoming US jobs data exceeds market expectations.