Gold prices rose 1.5% in European trade on Thursday away from four-week lows hit earlier, amid active short-covering. 

The precious metal regained its footing and passed $2600 once more, as the impact of the Federal Reserve’s policy decisions receded while the US dollar stalled against major rivals. 

Prices

Gold prices rose 1.5% to $2622 an ounce, after hitting November 18 lows at $2583. 

On Wednesday, gold lost 2.3%, the second loss in a row, and the heftiest since November 25 as both the dollar and US treasury yields rallied after the bullish Fed meeting.

The Dollar

The dollar index fell 0.3% on Thursday away from a two-year high at 108.27 against a basket of major rivals. 

The developments come ahead of important US data later today.

The Fed

The Federal Reserve cut interest rates by 25 basis points today to 4.5%, the lowest since December 2022, marking the third such rate cut in a row.

The Federal Open Market Committee voted in an 11-1 majority to cut rates by 0.25% to between 4.25% and 4.5%.

The Fed stated the US economy kept growing at a steady pace, with the labor market improving and unemployment remaining at low levels. 

The Fed pointed to progress in controlling inflation and bringing it back to 2%, but it said inflation remains “somewhat high”.

The Fed has thus cut interest rates by 100 basis points since the September meeting, at which it cut rates for the first time since 2022.

The Fed at only two interest rate cuts in 2025 amounting to 25 basis points each, with another two in 2026, and a single rate cut in 2027, eventually reaching an eventual neutral rate of 3%.

The Federal Open Market Committee raised its outlook for total GDP growth this year to 2.5%, up 0.5% from September, before slowing down to 1.8% next year. 

The FOMC also reduced its outlook for unemployment to 4.2%, but pushed the inflation outlook higher to 2.4%, and core inflation to 2.8%.

Powell

Fed Chair Jerome Powell said on Wednesday that policymakers would like to see more progress in controlling inflation before carrying on further interest rate hikes next year. 

US Rates

According to the Fedwatch tool, the odds of a 0.25% January interest rate cut by the Fed fell from 20% to just 8%. 

Now investors await important US GDP growth and unemployment claims data later today.

SPDR 

Gold holdings at the SPDR Gold Trust fell 0.29 tons yesterday to a total of 863.9 tons.

Sterling rose in European trade on Thursday against a basket of major rivals, moving away from three-week lows against the dollar ahead of the policy decisions by the Bank of England. 

The BOE is expected to hold interest rates unchanged as UK inflationary pressures mounted, making UK interest rates the highest in G8 countries.

The US-UK interest rate gap moved in favor of the UK, in turn boosting the pound’s standing against the dollar.

The Price

The GBP/USD pair rose 0.4% to $1.2625, with a session-low at $1.2563.

The pound lost 1.1% against the dollar yesterday, plumbing three-week lows at $1.2562 as both the dollar and US treasury yields powered up.

The BOE

The Bank of England is widely expected to hold interest rates unchanged at 4.75% today, the lowest since May 2023, as UK inflationary pressures resumed.

The BOE started cutting interest rates by 25 basis points in August to 5%, the first such cut since 2020.

It added another 0.25% rate cut in November to 4.75%. 

Later today, following the policy decision, the BOE Governor Andrew Bailey will present remarks to the press and will provide clues on the path ahead in 2025 for policies.

UK Rates

Following recent UK inflation and wages data this week, the odds of a 0.25% UK interest rate cut this week fell to just 2%.

Analysts expect only a total of 60 basis points of BOE interest rate cuts by the end of 2025.

Interest Rate Gap

Following the latest Fed’s policy meeting, the US-UK interest rate gap grew to 0.25% in favor of the UK, underpinning the pound.

The yen fell in Asian trade on Thursday against a basket of major rivals, extending losses for the second day against the US dollar and plumbing four-week lows after the BOJ maintained interest rates unchanged for the third meeting in a row. 

The BOJ repeated its warnings about uncertainty facing the Japanese economy, while prices remain high, with investors still waiting for clues on the odds of a BOJ rate hike in January or March.

The price is also pressured by a surge in US 10-year treasury yields after the Fed signaled fewer than expected interest rate cuts in 2025.

The Price 

The USD/JPY rose 0.4% today to 155.43 yen per dollar, the highest since November 21, with a session-low at 154.43.

The yen lost 0.85% on Wednesday against the dollar, marking the seventh profit in eight days as US yields rallied after the Fed’s meeting.

BOJ

The Bank of Japan voted to hold interest rates unchanged at 0.25%, the highest since 2008, as expected by most analysts.

Eight out of nine BOJ members voted in favor of holding rates flat, while a single member unexpectedly voted in favor of a 0.25% interest rate hike. 

The BOJ noted that Japan’s economy is recovering moderately, but still shows some weakness, with the BOJ maintaining its estimates that consumption is improving moderately, with prices remaining high.

US Yields 

US 10-year treasury yields rose 0.25% on Thursday to a six-month high at 4.526%, boosting the dollar’s standing. 

The Federal Reserve decided to cut interest rates by 25 basis points today, the third such rate cut in a row, following similar cuts in September and November. 

The Fed stated the US economy kept growing at a steady pace, with the labor market improving and unemployment remaining at low levels. 

The Fed hinted at only two interest rate cuts in 2025 amounting to 25 basis points each, with another two in 2026, and a single rate cut in 2027, eventually reaching an eventual neutral rate of 3%.

According to the Fedwatch tool, the odds of a 0.25% January interest rate cut by the Fed fell from 20% to just 8%. 

The Bank of Japan voted to hold interest rates unchanged at 0.25%, the highest since 2008, as expected by most analysts.

Eight out of nine BOJ members voted in favor of holding rates flat, while a single member unexpectedly voted in favor of a 0.25% interest rate hike.