Gold corrects from record highs, Fed interest rate decision to steer direction

LONDON (September 17) Gold (XAU/USD) is taking a breather on Wednesday, slipping from record highs as traders shift their focus to the Federal Reserve’s (Fed) interest rate decision due at 18:00 GMT. The precious metal touched a fresh all-time high near $3,703 on Tuesday but has since eased, as investors book profits and reposition ahead of the US central bank's monetary policy announcement.

At the time of writing, XAU/USD is trading around $3,667 during the European session, down nearly 0.60% on the day. A modest uptick in the US Dollar (USD) is also weighing on bullion, trimming its record-setting rally. Meanwhile, US Treasury yields remain subdued, reinforcing Gold’s appeal but keeping momentum capped until the Fed's policy outlook becomes clearer.

The Fed is widely expected to cut its benchmark rate by 25 basis points, bringing it to the 4.00%-4.25% range and delivering the first interest rate reduction of 2025. While the outcome is seen as a done deal, investors are bracing for the central bank’s updated dot plot and economic projections, which could set the tone for the pace and scope of further easing.

Fed Chair Jerome Powell’s press conference at 18:30 GMT will be closely scrutinized for signals on how aggressively policymakers intend to respond to a cooling labor market and sticky inflation.

Despite the current retreat, Gold’s broader uptrend remains intact. The prospect of easier US monetary policy, persistent geopolitical tensions, and steady safe-haven demand continue to underpin the bullish backdrop in XAU/USD. A dovish Fed could reignite Gold's upward momentum toward new highs, while a cautious message might see correction deepen below the $3,700 barrier.

Market movers: Fed in spotlight as easing cycle looms

• The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, steadies around 96.75 after two days of declines that pushed the index to its lowest level since July.
• The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 4.25%-4.50% for a fifth straight meeting in July.  However, for the first time since 1993, two governors of the 11 voters dissented or disagreed with the decision to hold interest rates steady, with Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller favoring a 25-basis-point (bps) cut.
• The latest batch of US economic data has given the Fed plenty of reasons to ease monetary policy. While August’s Consumer Price Index (CPI) showed headline inflation running slightly above expectations, the overall trend points to a cooling economy. Job growth nearly stalled, prior Nonfarm Payrolls were revised sharply lower, Initial Jobless Claims climbed to multi-year highs, and producer price pressures softened. Together, these indicators shift focus away from inflation and toward rising risks in the US labor market.
• According to the CME FedWatch tool, markets assign a 94% probability to a 25 bps cut and a 6% chance of a larger 50 bps move. The skew reflects growing conviction that the Fed will lean toward supporting maximum employment within its dual mandate, especially as monetary policy remains moderately restrictive despite lingering inflation pressure.
• The Fed’s interest rate decision takes place under unusual strain, with US President Donald Trump intensifying calls for a larger rate cut than the 25 bps markets expect. On Tuesday, Trump’s appointee Stephen Miran was sworn in as a Fed Governor after a narrow Senate confirmation, replacing Adriana Kugler. His arrival, coupled with Trump’s public pressure campaign, has sharpened concerns about the Fed’s independence and raised questions over whether political influence could shape the path of monetary easing.
• Major banks increasingly anticipate an accelerated Fed easing cycle. Goldman Sachs, Morgan Stanley, and Deutsche Bank all project three 25 bps cuts before year-end, which would bring the policy rate toward the 3.50%-3.75% range.

FXStreet