The US dollar saw choppy trading on Thursday as investors continued to digest the Fed’s cautious stance on further rate cuts, while attention shifted to the Bank of England’s upcoming decision, where no change in policy is expected.

Sterling slipped 0.1% to $1.3615, after climbing in the previous session to $1.3726, its strongest since July 2. The euro steadied at $1.1823, having retreated from a high of $1.19185 hit right after the Fed’s announcement, the strongest since June 2021.

The Fed cut interest rates by 25 basis points on Wednesday as widely anticipated, with Chair Jerome Powell describing the move as a “risk management cut” in response to labor market weakness, while stressing there was no need to rush into deeper easing.

Analysts were split on the Fed’s message: Goldman Sachs suggested Wednesday’s cut could mark the start of a series of reductions, while ANZ strategists argued Powell’s tone was “not dovish at all.”

Immediately after the decision, the dollar index dropped to 96.224, its weakest since February 2022, before rebounding sharply to end the day up 0.44% at 97.06.

Elliot Clarke, head of international economics at Westpac, said the Fed’s revised projections “highlighted the uncertainty that still surrounds the outlook,” noting that the expected timing and scale of cuts reflect ongoing inflation risks.

The Bank of England is widely expected to keep rates at 4% at Thursday’s meeting, with markets focused instead on the pace of quantitative easing reduction. Francesco Pesole, FX strategist at ING, warned that “any dovish surprise on QE could spark a sell-off in gilts and weigh heavily on sterling.”

Official data on Wednesday showed UK inflation rose 3.8% year-on-year in August, reinforcing expectations that no immediate rate cut is on the horizon.

Norway cuts rates for the second time in three months

The Norwegian krone showed little reaction after the central bank delivered a widely expected rate cut, its second in three months. Policymakers signaled further reductions are likely next year if the economy evolves as projected.

The euro trimmed earlier gains against the krone, last up just 0.1% at 0.86775.

Yen awaits Bank of Japan decision

The dollar edged up to 147.215 yen ahead of Friday’s BOJ meeting, with markets expecting no change in rates but pricing a quarter-point hike by March, with 50% odds of a move this year.

Investors are also watching the October 4 LDP leadership vote to replace outgoing Prime Minister Shigeru Ishiba, following the party’s heavy defeat in upper house elections.

New Zealand GDP contraction pressures NZD

Data on Thursday showed New Zealand’s economy shrank 0.9% in Q2 from the prior quarter, a worse-than-expected result that added to pressure on the RBNZ.

The weak data fueled bets on more easing, pushing the kiwi down around 1% to $0.5895, its lowest since September 8.

The Bank of England on Thursday published the voting details on UK interest rates at the conclusion of its September 18 meeting, showing seven members voted to keep rates unchanged, while two members voted in favor of a 25-basis-point cut.

The outcome diverged from market expectations, which had pointed to an 8–1 split in favor of holding rates steady.

• This vote is considered negative for the British pound.

The Bank of England on Thursday, September 18, decided to keep interest rates unchanged at 4.00%, the lowest level since February 2023, in line with market expectations.

This decision follows the previous meeting’s 25-basis-point cut, signaling a more cautious stance as policymakers assess economic conditions and inflation trends before considering further adjustments.

Gold prices declined in the European market on Thursday, extending losses for the second consecutive day and moving further away from their all-time highs, under pressure from ongoing profit-taking and the rebound of the US dollar in the foreign exchange market.

In line with expectations, the Federal Reserve cut interest rates by 25 basis points to a range of 4.25%, the lowest level since late 2022, with Jerome Powell adopting a cautious stance regarding further monetary easing in the near term.

Price Overview

• Gold prices today: Gold fell by 0.7% to $3,634.09 from the opening level of $3,659.54, with a session high of $3,662.40.

• At Wednesday’s settlement, gold lost 0.8%—its first decline in four sessions—after earlier reaching a new record high of $3,707.65 per ounce.

US Dollar

The US Dollar Index rose about 0.4% on Thursday, extending gains for the second straight session as it continued recovering from a three-and-a-half-year low at 96.22 points, reflecting ongoing strength in the currency against a basket of global peers.

In addition to bargain buying, the rebound came after the Fed’s cautious tone on the prospect of further rate cuts in the coming period.

Federal Reserve

At the conclusion of its sixth monetary policy meeting of 2025, and as widely expected, the Federal Reserve on Wednesday lowered interest rates by 25 basis points to 4.25%—the lowest since November 2022—after five consecutive meetings of keeping rates unchanged.

The decision, supported by a majority of the FOMC, saw only one dissenting vote from Stephen Miran, who preferred a 50 basis-point cut. It was the first rate cut of 2025 and the first under President Donald Trump’s administration.

The Fed’s policy statement cited a notable slowdown in job growth in recent months, alongside downward revisions to previous employment data, reflecting weakening momentum and rising labor market risks.

While acknowledging economic weakness, the Fed noted that inflation remains above its 2% target and pointed to new tariffs imposed by the Trump administration as adding to price pressures.

Economic Projections

The Fed’s quarterly economic outlook report, released Wednesday, included the following adjustments:

• Economic growth: Raised for 2025 from 1.4% to 1.6%, for 2026 from 1.6% to 1.8%, and for 2027 from 1.8% to 1.9%.

• Headline inflation: Left unchanged at 3.0% for 2025, raised from 2.4% to 2.6% for 2026, and kept at 2.1% for 2027.

• Core inflation: Held at 3.1% for 2025, raised from 2.4% to 2.6% for 2026, and left unchanged at 2.1% for 2027.

• Target rate: Lowered from 4.0% to 3.75% for 2025, from 3.5% to 3.25% for 2026, and from 3.25% to 3.0% for 2027.

Jerome Powell

Fed Chair Jerome Powell said Wednesday that the slowdown in GDP growth largely reflects weaker consumer spending, signaling waning domestic economic momentum.

He noted that while the inflationary impact of Trump’s tariffs could be short-term under the Fed’s baseline scenario, prolonged restrictive trade policies could exert longer-lasting pressures.

Powell acknowledged that it was no longer accurate to describe the labor market as strong, citing slower hiring and recent downward revisions to job data.

He stressed that there was no need to rush into additional cuts, affirming that monetary policy will remain data-dependent.

On the voting outcome, Powell said there was no broad support within the committee for a 50 basis-point cut.

US Interest Rates

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

• Members’ forecasts suggest one 25 basis-point cut in 2025 and another in 2026.

• Following the meeting, CME’s FedWatch tool showed October cut expectations easing, with odds of a 25 basis-point cut dropping from 100% to 87%, odds of a 50-point cut falling from 3% to 1%, and odds of no change rising from 0% to 13%.

Gold Outlook

• Peter Fertig, analyst at Quantitative Commodity Research, said some disappointment weighed on gold, as the market had expected a larger drop in the opportunity cost of holding bullion.

• ANZ Bank, in a Thursday note, forecast gold to outperform in the early stages of the rate-cutting cycle, citing safe-haven demand amid a complex geopolitical backdrop.

SPDR Holdings

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, fell by 4.29 metric tons on Wednesday, bringing the total down to 975.66 metric tons—its lowest since September 12.