Oil prices fell on Friday as concerns over fuel demand outweighed expectations that the US Federal Reserve’s first interest rate cut of the year could spur greater consumption.

Brent crude futures dropped 41 cents, or 0.6%, to $67.03 a barrel by 08:55 GMT, while US West Texas Intermediate (WTI) crude fell 54 cents, or 0.9%, to $63.03.

Despite the decline, both benchmarks remained on track for a second consecutive week of gains.

The Fed cut its benchmark interest rate by a quarter percentage point on Wednesday and signaled further reductions ahead in response to signs of weakness in the labor market. Lower borrowing costs typically boost oil demand and support higher prices.

Priyanka Sachdeva, analyst at Phillip Nova, said: “The market is stuck between conflicting signals. On the demand side, all energy agencies, including the US Energy Information Administration, have voiced concerns about weak demand, dampening expectations for a sharp price rally in the near term. On the supply side, planned output increases from OPEC+ and indications of excess US refined product inventories are weighing on sentiment.”

A larger-than-expected build in US distillate inventories—up by 4 million barrels—fueled concerns over demand in the world’s biggest oil consumer, adding further downward pressure on prices.

Fresh economic data also stoked worries, with the US labor market showing signs of weakness and single-family housing starts falling in August to their lowest level in several years amid a glut of unsold new homes.

Thomas Varga, analyst at PVM Oil Associates, noted: “One of the factors capping oil prices is the uneven economic recovery, particularly in the US. The corporate sector benefits from continued deregulation policies, while consumers are starting to feel the pinch of tariffs, with signs of strain emerging in both the labor and housing markets.”

In Russia, the Finance Ministry’s plans to shield the federal budget from oil price volatility and Western sanctions helped ease some supply concerns.

Daniel Hynes, analyst at ANZ, wrote in a note: “President Trump’s comments expressing a preference for lower prices over imposing sanctions on Russia also contributed to calming fears about supply disruptions.”

The US dollar gained against all its major peers yesterday and extended these gains on Friday against most currencies, with the exception of the Japanese yen, which strengthened after a Bank of Japan decision that turned out to be more hawkish than expected.

The dollar rebounded following Wednesday’s Federal Reserve decision, which investors judged to be less dovish than anticipated. The FOMC cut interest rates by 25 basis points, but Fed Chair Jerome Powell appeared in no rush to ease borrowing costs aggressively during his press conference. The committee’s projections showed two more cuts this year, but the median forecast for 2026 pointed to just one additional cut—contrasting with market expectations for three.

Adding further momentum to the dollar’s rise yesterday was a larger-than-expected drop in weekly initial jobless claims. Despite recent signs of weakness in labor reports, the Fed upgraded its growth forecasts and projected the unemployment rate would fall across its forecast horizon. The claims data reinforced that optimism.

Nevertheless, even with additional gains in the greenback, Fed funds futures indicate that investors remain convinced of two further cuts this year—in October and December—and three more in 2026. This divergence between market and Fed expectations suggests the dollar’s path will remain uncertain in the near term.

If incoming data continue to point to a stronger labor market, investors may start trimming bets on aggressive easing, which could lend the dollar further support. Conversely, weaker labor data could shift sentiment in the opposite direction.

Sterling Retreats as Two BOE Members Vote for a Cut

Thursday saw the Bank of England’s latest policy decision, with policymakers opting to hold rates steady by a 7–2 vote while reducing the pace of gilt sales to £70 billion from £100 billion.

Sterling’s initial reaction was positive, likely due to the relatively hawkish tone in the statement, which reaffirmed that a gradual and cautious approach to unwinding monetary accommodation remained appropriate. The statement also noted that the overall degree of policy tightness had fallen, hinting that the need for further cuts was not pressing.

However, the pound quickly reversed and lost its gains, pressured by the surprise of two members voting for a 25-basis-point cut instead of just one as expected. The stronger dollar on the back of US jobless claims, combined with comments from Governor Andrew Bailey later in the day pointing to the likelihood of further easing ahead, added to sterling’s decline.

Yen Rallies After a Hawkish BOJ Tone

During today’s Asian session, focus turned to the Bank of Japan. Policymakers also kept rates unchanged in a 7–2 vote, but this time the dissenters pushed for a hike. The BOJ also unanimously announced it would begin selling its holdings of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs).

The yen jumped immediately as traders ramped up bets on a rate increase. According to Japan’s overnight index swaps (OIS), the probability of a 25-basis-point hike by year-end rose to 70% from 65% prior to the decision. Markets are pricing a 43% chance of an October hike, with expectations of another similar move next year.

Gold prices fell in the European market on Friday, continuing to move in negative territory for the third consecutive day and retreating significantly from record highs, as correction and profit-taking activity persisted alongside pressure from the rise of the US currency in the foreign exchange market.

As widely expected, the Federal Reserve announced a 25-basis-point interest rate cut, bringing rates to their lowest levels in nearly three years, though it gave no signals that it was in a hurry to ease monetary policy further in the coming months.

Price Overview

•Gold prices today: Gold fell by 0.35% to $3,632.33, from the opening level of $3,644.294, recording a session high of $3,657.40.

•At Thursday’s settlement, gold lost 0.45% in its second straight daily decline, as correction and profit-taking continued from the all-time high of $3,707.65 an ounce.

•Aside from profit-taking, gold prices also came under pressure from the US dollar’s rise following positive economic data in the United States.

US Dollar

The dollar index rose by 0.15% on Friday, extending gains for a third consecutive session and reflecting the continued strengthening of the US currency against a basket of major and minor counterparts.

Beyond recovering from its lowest level in three and a half years, the dollar’s rise also came after the Federal Reserve failed to deliver the more dovish signals markets were expecting.

Federal Reserve

•In line with expectations, the Fed on Wednesday cut rates by 25 basis points, bringing them to 4.25%, their lowest since November 2022, after five consecutive meetings of holding rates steady.

•The decision passed with a majority of FOMC members in favor, except for one dissenter, Steven Mnuchin, who preferred a larger 50-basis-point cut.

•The Fed noted in its policy statement that job growth had slowed markedly in recent months, with downward revisions to prior employment data, reflecting weakening momentum and rising labor market risks.

•The Fed added that despite slowing growth, inflation remains above the 2% target, pointing out that new tariffs imposed by the Trump administration were adding further upward pressure on prices.

•In its quarterly economic projections, the Fed lowered the 2025 year-end target rate from 4.0% to 3.75%, the 2026 target from 3.5% to 3.25%, and the 2027 target from 3.25% to 3.0%.

•Fed Chair Jerome Powell described the rate cut as necessary for risk management in response to labor market weakness, saying the central bank was in a “volatile situation” regarding interest rate expectations.

•Powell added that he saw no need for rapid additional cuts, emphasizing that monetary policy would remain data-dependent, guided by inflation and growth developments.

US Interest Rates

•The Fed’s median projections point to an additional 50 basis points of rate cuts in 2025.

•Median expectations from Fed members show one 25-basis-point cut in 2025, with another similar cut expected in 2026.

•Following the meeting, CME Group’s FedWatch tool showed the market pricing for a 25-basis-point October cut falling from 100% to 87%, the probability of a 50-basis-point cut slipping from 3% to 1%, and the likelihood of no change rising from 0% to 13%.

Gold Outlook

•Kyle Rodda, market analyst at Capital.com, said: “Sentiment remains bullish, but it has definitely lost some momentum. Essentially, the Fed didn’t provide dovish-enough guidance to push gold higher.”

•Rodda added that expectations for two more cuts this year were supportive, but projections of just one cut in 2026 were higher than market pricing, which pushed yields and the dollar higher.

SPDR Fund

Gold holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Thursday, with the total remaining at 975.66 metric tons—the lowest since September 12.

The British pound fell in European trading on Friday against a basket of global currencies, extending its losses for the third consecutive session against the US dollar and moving notably away from its highest level in two and a half months.

This decline comes amid ongoing correction and profit-taking, in addition to negative pressure from the outcome of the Bank of England’s latest monetary policy meeting.

In line with expectations, the Bank of England kept its benchmark interest rate unchanged at its lowest level in two and a half years, though the voting details surprised markets; seven members voted to maintain current rates, while two favored a 25-basis-point cut.

Price Overview

•British pound exchange rate today: The pound fell against the dollar by about 0.2% to $1.3531, from the opening price of $1.3554, with the session high at $1.3560.

•The pound lost 0.5% against the dollar on Thursday, marking its second straight daily decline, as correction and profit-taking continued from its two-and-a-half-month high at $1.3727, under pressure from the Bank of England meeting results.

Bank of England

In line with expectations, the Bank of England decided on Thursday to leave interest rates unchanged at 4.00%, the lowest since February 2023. It also said it would slow the pace of quantitative tightening and avoid selling long-term government bonds to limit the impact on volatile markets.

The decision passed with seven members voting to keep rates unchanged, while two supported a 25-basis-point cut to 3.75%. This split went against market expectations, which had forecast eight members voting for no change and just one for a cut.

In its monetary policy statement, the Bank of England said that any upcoming rate cuts would be cautious and gradual.

Andrew Bailey

Bank of England Governor Andrew Bailey said after Thursday’s meeting that the Monetary Policy Committee is following a “gradual and cautious” approach to rate reductions, focusing on the medium-term upside risks to inflation, such as rising food prices that could influence wage agreements and exert pressure on long-term price levels.

UK Interest Rates

•Traders increased their bets on further Bank of England rate cuts, expecting at least an additional 25-basis-point reduction this year.

•Market pricing currently places the probability of a 25-basis-point rate cut at the November meeting above 50%.