July 24 (Reuters) - Gold prices edged higher on Wednesday, recovering from a one-week low touched in the previous session, on expectations of an interest rate cut by the U.S. Federal Reserve and escalating tensions in the Middle East.
FUNDAMENTALS
* Spot gold XAU= was up 0.2% at $1,420.40 per ounce as of 0128 GMT, after hitting its lowest since July 17 at $1,413.80 in the previous session.
* U.S. gold futures GCv1 were steady at $1,420.80 an ounce.
* Futures FEDWATCH remain 100% priced for a rate cut of 25 basis points (bps) by the Fed next week, and have even priced in an 18% chance of a 50 bp cut.
* The European Central Bank is expected to signal easier monetary policy at its meeting this week, while the Turkish central bank is expected to make a 250 bp cut on July 25. A U.S. Navy ship took defensive action against a second Iranian drone in the Strait of Hormuz last week, but did not see the drone go into the water, the U.S. military said on Tuesday. Meanwhile, the dollar index .DXY edged up to a five-week high on Wednesday, following gains of nearly 0.5% the previous day, while the euro slipped to a two-month low. USD/
* U.S. Trade Representative Robert Lighthizer and senior U.S. officials will travel to Shanghai on Monday for face-to-face trade meetings with Chinese officials, Bloomberg reported on Tuesday, citing unnamed sources. Asian shares nudged higher on Wednesday amid hints of progress in the Sino-U.S. trade saga. MKTS/GLOB
* SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, said its holdings fell 0.25% from Monday to 823.13 tonnes on Tuesday.
DATA AHEAD
* 0800 EU
Markit Mfg, Serv, Comp Flash PMIs July
* 1345 US
Markit Mfg, Serv, Comp Flash PMIs July
* 1400 US
New Home Sales-Units
June