XAUUSD expects gold prices to rise over $1,730, marking a 1% increase from current levels. Federal Reserve abandons plans to raise interest rates

The gold price (XAUUSD) has recovered well and is now aiming to return to its weekly high around $1,740.00. Gold regained its strength last week after falling to close key support of $1,680.00. After re-testing the 11-month low of $1,679.80, gold prices have rebounded by more than 3.30 percent in only two days thanks to the efforts of gold bulls.

Following massive cuts to forecasts for a rate rise by the Federal Reserve (Fed), the US dollar index (DXY) gave up its early gains on Friday. The gloomy S&P PMI data and falling inflation expectations reduced the likelihood of a rate rise by the Federal Reserve at its monetary policy meeting on Wednesday by 100 basis points (bps).

After long-term inflation expectations dropped to 2.8% in July from 3.1% in June, investors gambled on a subsequent rate rise of 75 basis points from the Fed rather than a rate hike of 1%.

The S&P issued the PMI data on Friday, and it showed that conditions had not improved in any significant ways. A reading of 47.5 for the Global Composite PMI was far below both the forecasted 51.7 and the previously reported 52.3. If we look at the Manufacturing and Services sectors more broadly, we see that the former catalyst was at 52.3, down from 52.7, and the latter was recorded at 47, down from 52.7. For this reason, the Fed will likely remain cautiously hawkish even if the PMI improves.

Investors will be looking ahead to Wednesday's US Durable Goods Orders report in addition to the Fed's interest rate announcement. We anticipate a reading of -0.2% for economic growth, which is down sharply from the previous reading of 0.82%.