Gold Drops to Two-Month Low; WTI Bounces as Yields and USD Pressures Persist

EUR/USD edged lower to around 1.1220 during Tuesday’s early Asian trading session, with the Euro coming under pressure amid growing concerns over France’s deteriorating fiscal position. The shared currency remains near a 17-month low against the US Dollar as investors closely monitor rising French debt costs and the government’s efforts to bring its stretched public finances under control.

French Prime Minister Sébastien Lecornu’s minority government announced a €54 billion savings plan last month in an effort to prevent a potentially severe downgrade of the country’s credit standing or a sovereign debt crisis. Lecornu said the measures are intended to reduce France’s budget deficit from 5.5% of GDP this year to 5% next year. Without further action, he warned that the deficit could rise to as much as 6.5% of GDP.

Political developments elsewhere in the region are also adding to the currency’s downside risks. In Spain, Prime Minister Pedro Sanchez has called a snap election for November 29 in an attempt to strengthen his parliamentary support after lawmakers rejected proposals aimed at addressing the country’s housing crisis, which has triggered widespread protests.

At the same time, expectations of a Federal Reserve rate hike this month have declined following weaker-than-expected US employment data, potentially limiting further gains in the US Dollar and providing some support for EUR/USD.

The combination of growing fiscal concerns, political uncertainty and the possibility of a shallower ECB tightening cycle is therefore keeping the Euro under pressure. While weaker US employment data has reduced expectations for further Federal Reserve tightening and could provide some support to EUR/USD, persistent concerns surrounding France’s finances and broader political risks across the Eurozone remain key obstacles for the shared currency.

Gold (XAU/USD) came under renewed selling pressure on Tuesday, falling to a two-month low during the Asian trading session as bears turned their attention to the key $4,100 level. The precious metal remains under pressure as the US Dollar (USD) maintains its bullish bias despite declining expectations for a Federal Reserve (Fed) rate hike in October. A stronger Dollar continues to weigh on demand for gold, while elevated US Treasury yields are adding further pressure to the non-yielding asset.

Recent US economic data pointed to moderating inflation and signs of a gradual cooling in the labor market, which have led investors to scale back expectations for an October Fed rate hike. At the same time, however, US bond yields remain elevated, limiting gold’s ability to recover. The combination of firm Treasury yields and a resilient US Dollar continues to encourage selling in the precious metal.

Investors will now turn their attention to the minutes of the Federal Open Market Committee (FOMC) meeting, due on Wednesday, for further clues about the Federal Reserve’s policy outlook. The minutes could provide additional insight into policymakers’ views on inflation, employment and the appropriate path for interest rates. A hawkish tone could strengthen the US Dollar and increase selling pressure on gold, while a more cautious stance could offer the precious metal some relief.

Oil prices edged lower on Tuesday as resilient Middle Eastern crude exports and a decision by G7 countries to release emergency stockpiles eased concerns about supply disruptions. However, continued attacks by Yemen’s Iran-backed Houthi forces on targets in Saudi Arabia kept traders cautious about the potential risks to oil supplies from the Gulf region.

The modest declines came after oil prices weakened in the previous session as markets continued to assess improving supply conditions against persistent geopolitical risks.

Shipping data released on Monday showed that crude exports from the Middle East exceeded pre-war levels on four days during the final week of September. The figures highlight the resilience of regional oil flows despite continued attacks on vessels traveling through the strategically important Strait of Hormuz, one of the world’s most critical energy shipping routes.

Supply concerns were further eased after G7 countries agreed on Friday to release 100 million barrels of diesel and crude oil from emergency reserves. The group also pledged to avoid imposing energy export restrictions following pressure from US President Donald Trump. The additional supply is expected to provide some relief to markets at a time when geopolitical tensions remain elevated.

Nevertheless, risks to regional oil supplies have not disappeared. The ongoing conflict between Saudi Arabia and Iran-backed Houthi forces in Yemen continues to raise concerns about potential disruptions in exports from Saudi Arabia, the region’s largest oil producer. Uncertainty has also persisted around US-Iran relations, with talks remaining at an impasse and no clear diplomatic breakthrough in sight.

Wall Street closed higher on Monday, with the US 500 finishing close to its record closing high as investors largely looked past continued turmoil in global bond markets. Strength in materials and communication services stocks, combined with softer oil prices and momentum from the previous session, helped support equities despite a persistent rise in borrowing costs.

The rally came despite another difficult session for global bonds. US Treasury yields eased from their session highs but remained elevated, with the 10-year yield around 5.313% and the 30-year yield near 5.666%, both close to levels not seen since early 2002. The bond sell-off has been driven by a combination of concerns over oil-related inflation, heavy corporate borrowing to finance artificial intelligence infrastructure, hawkish central banks and growing government debt.

Investors are also keeping a close eye on developments in Europe, particularly France, where fiscal concerns have intensified market volatility. The sharp increase in French borrowing costs has raised questions over whether the latest market moves represent the beginning of another Eurozone sovereign debt crisis or whether investors have already pushed valuations too far.

Economic data this week are expected to be relatively limited, with the final services-sector surveys among the main releases. Monday’s Institute for Supply Management report showed that activity in the US services sector slowed in September but remained in expansion territory. More importantly, the prices-paid component accelerated to its highest level since July 2022, suggesting that inflationary pressures remain a concern.

Despite the positive performance of equities, the broader market backdrop remains fragile. Investors are balancing strong stock-market momentum against elevated Treasury yields, persistent inflation risks, rising government debt, trade tensions and geopolitical uncertainty.