Gold Hits Record as Fed Cuts Rates (22 - 26 September)

The Federal Reserve cut interest rates by 25 bps, bringing the federal funds rate to the 4.00%–4.25% range. Policymakers signaled two more cuts in 2025 and one in 2026, slightly above previous guidance. Chair Powell described the move as a “risk management” cut, highlighting labor market risks while emphasizing there are “no risk-free paths.”

In response, gold surged to $3,707.40, a fresh record, before settling near $3,680. The dollar index rose to 97.8, posting its third straight daily gain, while US Treasury yields advanced, with the 10-year rising to 4.13%, the highest in two weeks.

Elsewhere, Brent crude oil slipped to $66.70, silver jumped to $43, and the yen strengthened, while the pound fell on weak UK fiscal data.

Market Drivers and Catalysts

• Currencies: Dollar rises after Fed cut; euro eases from 4-year high; pound weakens; yen rebounds
• Commodities: Gold hits new record; silver surges; Brent crude drops on supply concerns
• Fixed Income: US Treasury yields climb; Bunds rise on higher German issuance; JGB yields firm
• Macro events: Fed rate cut and dot plot; ECB, BoJ, BoE decisions; UK and German CPI
• Macro headlines: Fed signals more cuts ahead; ECB cautious; BoJ holds amid recovery; UK fiscal data disappoints

Fixed Income

• US: The 10-year Treasury yield rose 3 bps to 4.13%, marking its highest level in two weeks, and closed the week 6 bps higher. The Fed delivered a 25 bps cut, its first since December, and projected 75 bps more in total cuts through 2026. Powell emphasized uncertainty ahead, calling it a "risk management" move.
• Japan: The 10-year JGB yield climbed above 1.63% after the BoJ held rates steady at 0.5% for the fifth meeting in a row. While the bank cited moderate economic recovery, it warned of risks from global trade and political instability. The BoJ also announced plans to begin selling ETF and J-REIT holdings. Core inflation slowed to 2.7%, the lowest since November 2024.
• Germany: The 10-year Bund yield moved toward 2.75% following news that Q4 debt issuance would rise by €15 billion, driven by infrastructure and defense needs. The announcement, alongside ECB rate hold and France’s ongoing budget concerns, fueled demand for safe-haven Bunds.
• UK: Gilt yields were pressured by weak fiscal data. August borrowing came in at £18 billion, sharply missing expectations. Year-to-date borrowing reached £83.8 billion, exceeding projections and raising concerns ahead of the Autumn Budget.

Commodities

Gold climbed to $3,680, registering a fifth consecutive weekly gain, supported by Fed rate cuts and expectations of continued easing. Spot gold briefly touched a new record of $3,707.40. Lower yields, geopolitical uncertainty, and strong physical demand from India and China further underpinned gold’s rally.

Silver rose over 2% to near $43, erasing early-week losses. The Fed's dovish guidance, global central bank divergence, and strong industrial demand from solar, EV, and electronics sectors added to bullish sentiment. Structural supply tightness continues to support the metal.

Currencies

• Dollar: The dollar index advanced to 97.8, recovering from early-week lows as the Fed’s cautious cut reinforced confidence in US economic resilience. Jobless claims surprised to the downside, supporting the view that labor weakness is not yet severe.
• Euro: The euro traded near $1.18, down slightly from a four-year high earlier in the week. While the ECB held rates steady, policymakers, including Schnabel, signaled a cautious approach ahead. Sticky services and food inflation, alongside fiscal tensions, remain key themes.
• Pound: The pound dropped to $1.35, its lowest in two weeks, following disappointing UK borrowing data. The shortfall widened pressure on the government ahead of budget season. Yields on long-term gilts touched new highs earlier in the week before easing.
• Yen: The yen strengthened past 147.5, ending a two-day slide after the BoJ reiterated a cautious but moderately optimistic economic view. The central bank’s decision to start unwinding asset purchases provided additional support. Earlier weakness had stemmed from the Fed’s slightly less dovish stance.

Macro Calendar Highlights (Times in GMT)

• 18:00 – Fed FOMC Rate Decision and Dot Plot
• 18:30 – Fed Press Conference with Powell
• 09:00 – ECB Policy Decision and Lagarde Remarks
• 04:30 – Japan CPI (Aug)
• 07:00 – UK Borrowing and CPI Figures