Dollar rose in European trade against a basket of major rivals away from recent eight-month lows amid improving demand on the greenback from low levels. 

However the gains remain limited as markets fully priced in a reduced 0.25% rate hike by the Fed in February. 

The Index

The dollar index rose 0.1% to 102.12, with a session-low at 101.77, after losing 0.1% yesterday, edging closer back then to eight-month lows at 101.52. 

Fed Rates

Pricing for a 0.25% rate hike by the Federal Reserve in February stands at 100%, slowing it down from recent 0.5% rate hikes.

Growth Data

Markets are avoiding big positions on the dollar ahead of US growth data in the final quarter of 2022, expected tomorrow which will provide important clues on the pace of policy tightening.

The Fed

The Federal Reserve is holding its first policy meeting of the year next week to assess growth and inflation developments and decide on policy, with analysts expecting a reduced 0.25% rate hike. 

Gold prices fell in European trade for the first time in three sessions off nine-month highs on profit-taking while dollar rebounds. 

Now investors await US GDP data for the fourth quarter, expected to provide more clues on the pace of policy tightening in the US.

Gold Prices Today

Gold prices fell 0.6% to $1,925 an ounce, with a session-high at $1,939, after rising 0.3% yesterday, the second profit in a row, with a nine-month high at $1,942 as dollar weakens against a batch of major rivals. 

The Dollar

The dollar index rose over 0.1% away from eight-month lows against a basket of major rivals, pressuring dollar-denominated precious metals. 

Traders continue to shun big positions ahead of US growth data, expected tomorrow and crucial for gauging the pace of policy tightening. 

The Federal Reserve is holding its first policy meeting of the year next week to assess growth and inflation developments and decide on policy, with analysts expecting a reduced 0.25% rate hike. 

Estimates

Markets are awaiting US GDP growth data before taking positions, with weak data forcing the Fed to slow down its pace of policy tightening and boosting gold prices, and vice versa. 

Analysts believe that for gold to reliably pierce the $2,000 levels, dollar has to continue its decline. 

The SPDR

Gold holdings at the SPDR Gold Trust rose 0.28 tones yesterday to a total of 917.34 tones, the highest since December 27. 

German IFO Business Climate index rose to 90.2 in January, matching estimates and improving from 88.6 in the previous reading. 

Euro rose in European trade against dollar for the sixth straight session, hovering near nine-month highs on strong prospects for European interest rates. 

Now investors await important German business climate data for January, expected to show improvement for the third month in a row. 

EUR/USD rose 0.25% to 1.0911, with a session-low at 1.0877, after closing up 0.1% yesterday, the fifth profit in a row, marking nine-month highs at 1.0925. 

Bullish Remarks

ECB officials strongly hinted in recent remarks at successive 0.5% rate hikes in February and March and beyond.

ECB President Christine Lagarde said in the Economic Forum in Davos that inflation remains too high, and the ECB will continue hiking rates until inflation is brought back to 2%.

European Rates

Markets now widely expect the European Central Bank to increase interest rates by successive 0.5% hikes in upcoming meetings to control inflation.

Data

Now investors await German business climate data, expected to show an increase for the third month in a row, in turn underpinning the common currency.