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 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 were steady at $1,420.80 an ounce.
* Futures 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 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.
* 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.
* SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.25% from Monday to 823.13 tonnes on Tuesday.