Rate Pause Expected, But Powell’s Tone Holds the Key
The Federal Reserve is widely anticipated to extend its pause on rate cuts in March, but traders are laser-focused on the Statement of Economic Projections (SEP), particularly the Dot Plot and Chair Jerome Powell’s speech, both of which will shape market expectations for the next policy move.
Hints of a prolonged pause amid Trump’s protectionist policies and their inflationary pressures could trigger a sharp correction in gold, while the U.S. dollar (USD) may stage a recovery rally if the Fed strikes a hawkish tone. Markets have already priced in at least two rate cuts this year, but if the Fed pencils in fewer than expected, gold could face additional downside pressure.
Conversely, should Powell acknowledge rising recession risks or maintain the Fed’s rate-cut outlook for 2025, the decision would likely be perceived as a dovish hold putting the USD and Treasury yields under renewed selling pressure, while propelling gold to fresh record highs.
Gold Climbs to New Highs Ahead of Fed Decision
Gold (XAU/USD) hit an all-time high of $3,039 during the Asian session on Wednesday but lacked strong follow-through as traders awaited the Federal Open Market Committee (FOMC) policy announcement. The Fed is expected to keep rates steady at 4.25%-4.50%, with investors scrutinizing Powell’s press conference for clues on the future rate-cut trajectory a key driver for the dollar and gold’s next move.
Some pre-Fed repositioning has helped the USD recover slightly from its lowest level since October, capping gold’s gains for now. However, persistent geopolitical and trade tensions, particularly Trump’s aggressive trade stance, remain a bullish tailwind for the metal.
Meanwhile, Middle East tensions continue to escalate, with Israeli airstrikes in Gaza reportedly killing over 400 people on Tuesday. At the same time, Ukrainian President Volodymyr Zelensky remains skeptical of Russia’s proposed limited ceasefire, despite U.S. President Trump and Vladimir Putin reaching a tentative agreement in phone negotiations.
Market Outlook: Traders Must Stay Agile
With gold trading in overbought conditions, some profit-taking is expected, but the longer-term uptrend remains intact as economic and geopolitical uncertainties keep risk appetite in check. Whether the Fed’s stance adds fuel to the rally or sparks a correction will depend on Powell’s tone and updated rate forecasts.
Traders should remain nimble, as any deviation from expected Fed guidance could trigger significant moves across gold, the USD, and Treasury yields.