Dollar fell in European trade against a basket of major rivals, resuming the gains after a hiatus that pushed the greenback near eight-month lows under pressure from a reduced 0.25% rate hike by the Federal Reserve. 

The Fed is convening tomorrow and issuing decisions on Wednesday, with markets fully pricing 0.25% rate hike, down from 0.5%. 

The Index

The dollar index fell 0.3% to 101.65, with a session-high at 102.04, after closing up 0.1% on Friday, the second profit in a row away from eight-month lows at 101.50. 

The index lost 0.1% last week, the third loss in a row amid a continued selloff pressure. 

Interest Rates 

Odds for a 0.25% rate hike by the Fed this week stand at 99.9%, after the Fed already reduced its rate hikes from 0.75% to 0.5%. 

The Fed

Fed Chair Jerome Powell will speak on the future of interest rates and policy meetings following the official meeting on Wednesday, and will provide important clues on the path ahead. 

A bearish statement from Powell will hurt the dollar even more and send it to year lows. 

Gold prices rose in European trade after a two-day hiatus from gains on profit-taking off nine-month highs, with prices holding above $1,900 while dollar declines. 

Now investors await meetings by central banks in Europe, the UK, and the US, all are expected to hike interest rates to control inflation.

Gold Prices Today

Gold prices rose over 0.3% to $1,934 an ounce, after losing 0.1% on Friday, the second loss in a row on profit-taking off nine-month highs at $1,949. 

The precious metal rose 0.1% last week, the sixth weekly profit in a row, and the longest such streak of weekly gains since June 2020 as dollar declined.

The Dollar

The dollar index fell 0.15% on Monday, resuming the losses and almost hitting recent eight-month lows at 101.50 against a basket of major rivals. 

Dollar's decline makes dollar-denominated commodities cheaper to holders of other currencies. 

Global Central Banks

The Federal Reserve is convening this week to decide on policies, expected to issue a reduced rate hike of 0.25% this time around. 

Central banks in Europe and the UK are also expected to increase interest rates but by 0.5% this week and extend their policy tightening efforts. 

Actual Demand

Chinese government noted that the current wave of Covid 19 infections in China is getting to an end if no major outbreaks occurred during the lunar near year holiday. 

Thus it's expected for actual demand on gold to improve as Chinese economy opens up once more. 

The SPDR

Gold holdings at the SPDR Gold Trust fell 0.87 tones on Friday to a total of 918.50 tones. 

Will gold prices pierce $2000 this week?

Many analysts expect gold prices to extend gains and pierce $2000 for the first time since March 2022 if the Fed issued strong evidence on ending the cycle of policy tightening and rate hikes. 

Euro rose in European trade against dollar after a two-day hiatus from gains, on track to  retest nine-month highs on prospects of ECB's policy tightening. 

The European Central Bank is expected to increase interest rates by 50 basis points at the first meeting of 2023 next Thursday, with another 0.5% rate hike in March. 

EUR/USD rose 0.2% to 1.0884, with a session-low at 1.0853, after closing down 0.25% on Friday, the second loss in a row on profit-taking off nine-month highs at 1.0929.

Euro rose 0.1% against dollar last week, the third weekly profit in a row as concerns about a policy gap between Europe and the US cease. 

The ECB

ECB President Christine Lagarde said recently that inflation remains too high and the bank is committed to continuously increase interest rates until inflation is brought back to 2%.

Lagarde once again repeated the use of the phrase "staying the course" when talking about interest rate decisions at upcoming meetings, meaning the current pace will be maintained at least until the second quarter of the year.

Other ECB members strongly hinted at multiple 0.5% rate hikes in both February and March.

Estimates

Despite current losses, analysts still expect the euro to pierce $1.1 in the short term as the ECB prepares a rate hike that's double the hike of the Fed. 

Broadly, the euro is expected to advance against most major rivals to year-highs. 

Gold prices settled on Friday inside a tight range  of trading as markets assess dollar's movements against a basket of major rivals. 

Recent data showed US economy grew 2.9% in the fourth quarter of 2022, beating estimates of 2.6%, while up from 3.2% in the third quarter.

US consumer spending, an important index for inflation, rose 0.3% last month.

Such data indicate the strength and vitality of the economy, which is reflected in recent statements by the IMF expecting the US recession to avoid recession this year.

The  dollar index rose 0.15% as  of 18:17  GMT  to  101.9,  with a session-high  at 102.1, and  a low  at 101.6. 

Gold spot prices steadied at  $1,929.5 an ounce as  of 18:18 GMT. 

Will the Federal Reserve maintain tight monetary policies?

Global Central Banks in Europe, the US, and England will meet next week to decide on policies.

The Federal Reserve is widely expected to increase interest rates and carry on its policy tightening to control inflation.