US Dollar Index Surges Past April 2025 Highs

The US Dollar Index (USD) continued its upward trend this week, reaching its highest level since April 2025. The index rose for a fourth straight day on Thursday and closed near 102.1, with oil down and yields off their highs. This refusal of the dollar to fall is notable, especially given the soft inflation data that should have pushed it lower.

Part of the strength comes from Europe, where the euro fell below 1.13 for the first time since May 2025 due to dearer oil and French budget worries. The rest comes from the bond market, specifically the long end of the bond market, which has been rising despite the Fed's softened stance on interest rates.

The bond market is a key driver in this story because it sets the competition for gold. Gold pays no interest, so its value is tied to the yield investors give up by holding it. A softer Fed should help gold if the long end of the bond market follows suit, but this week it did not. As a result, gold failed to hold a rally on soft inflation data and rose on hawkish news with internals that suggested a top.

The current setup offers a favorable risk-to-reward point for entering or adding to short positions in gold. The technical formation is complete, with over three closes below the neckline of the head-and-shoulders pattern. Silver is doing nothing, ready to slide when gold, USD, or stocks give it a push.

The jobs report arrives today at 8:30 a.m. Eastern, and a hot report would be hawkish for gold, while a weak one should help it. The Fed's projections show at least one more hike this year, and the September CPI arrives in mid-October, two weeks before the October 27-28 meeting.