Fed cuts but fails to convince: Gold at record highs, Dollar on edge

Introduction

The Federal Reserve delivered its first rate cut of 2025, trimming the benchmark rate by 25 basis points. The decision was widely expected, yet the market reaction was far from uniform. Rather than celebrating a decisive dovish turn, investors were left wondering whether Chair Jerome Powell’s cautious language hinted at deeper concerns about growth, inflation, or the Fed’s willingness to ease further.

While equity benchmarks responded with initial optimism, the FX and commodities space told a different story. The US dollar retreated against major peers before stabilizing, while gold surged to fresh record highs above $3 750 per ounce. Taken together, these moves suggest that the cut was not “dovish enough” relative to what markets had already priced in, and that uncertainty around the Fed’s trajectory remains the dominant theme for traders.

Market reaction: Gold steals the spotlight

Gold’s rally has been nothing short of spectacular. Spot prices pushed through the $3 750 barrier, briefly touching $3 791 before easing. This move extends a months-long uptrend that began in late Q2 as markets increasingly priced in policy easing.

Why gold? Two reasons stand out. First, lower interest rates reduce the opportunity cost of holding non-yielding assets like bullion. Second, with the Fed’s guidance still cautious, investors are hedging against both economic slowdown and policy missteps. In other words, gold is simultaneously serving as an inflation hedge, a recession hedge, and a policy uncertainty hedge.

Silver also benefitted, advancing toward $43 per ounce, although the move remains secondary to gold’s psychological breakout.

Technical perspective: The technical picture reinforces the bullish narrative but also highlights near-term risks. On Renko charts, gold faced rejection near $3 785–$3 790, leaving behind a bearish divergence on the stochastic oscillator. Support is clustered around $3 754–$3 755 (weekly pivot WR100), which now acts as the first line of defense. As long as prices hold above this zone, momentum traders will view the pullback as corrective rather than structural. A decisive break below, however, could trigger a deeper retracement toward the $3 730 area before buyers step back in.

FX markets: Dollar stumbles, but resists a collapse

The dollar index (DXY) initially fell on the Fed decision, breaking toward the 102 handle, but quickly found buyers. Against the yen, USD/JPY dropped to 147,50 (a key technical level cited by many analysts) before rebounding modestly. EUR/USD, meanwhile, edged higher above 1,12 before stabilizing.

The message here is nuanced: markets had priced in a 25-bp cut, and perhaps even flirted with expectations of a more aggressive Fed. When Powell declined to signal a series of consecutive cuts, the dollar regained some ground.

The resilience of the greenback underscores that monetary policy divergence remains in play. The European Central Bank and the Bank of Japan are moving cautiously, and without synchronized global easing, the dollar may continue to hold a relative yield advantage in select pairs.

Macro data: PMI signals fragile growth

The timing of the Fed cut coincided with softer US PMI data. The September flash readings showed a slowdown in both manufacturing and services, though still in expansionary territory. For markets, this reinforced the narrative of a “fragile soft landing.”

On one hand, the Fed cut can be justified by slowing momentum across sectors. On the other, inflation, particularly services inflation, has not fully subsided, leaving the central bank wary of cutting too aggressively. This tension between weaker growth and sticky inflation explains Powell’s careful tone: the Fed is easing, but not “pivoting.”

Why the cut was “not dovish enough”

Financial markets live and die by expectations. By mid-September, futures markets had priced in not only this 25-bp cut but also at least two more reductions by year-end. Against that backdrop, Powell’s statement, describing rates as “modestly restrictive” and insisting that further cuts would be “data-dependent”, felt underwhelming to investors who were looking for stronger forward guidance.

In other words, the Fed delivered what was expected mechanically, but not what was expected emotionally. The result: disappointment in FX markets, a modest pullback in equities, and renewed flows into safe havens like gold.

The global angle: Diverging central banks

The Fed is not easing in a vacuum. The European Central Bank has signaled patience, emphasizing that inflation is not yet fully under control in the eurozone. The Bank of Japan, meanwhile, remains cautious about unwinding its ultra-loose policy despite persistent yen weakness.

This divergence matters for traders. If the Fed alone continues to cut while other central banks remain steady, the dollar could weaken materially. If, however, global central banks move in tandem over the next quarter, the dollar’s downside may be capped. For now, the relative policy stance keeps volatility elevated in EUR/USD, USD/JPY, and GBP/USD.

Trading implications: Crossroads ahead

• Gold: The breakout above $3 750 places the $3 800–$3 850 zone as the next target, with $3 700 as immediate support. Momentum remains firmly bullish as long as real yields drift lower.

• EUR/USD: The pair faces resistance near 1,1250. Sustained gains require confirmation from European data, especially given ECB reluctance to match Fed easing.

• USD/JPY: Key battleground near 147,50. A break lower could expose 146,00, but intervention fears from Tokyo remain a wild card.

• Equities: The initial bounce has faded slightly; without clear dovish signals, risk assets may struggle to extend gains into Q4.

Personal take: The Fed’s balancing act

In my view, the Fed is attempting a delicate balancing act. cutting enough to cushion the economy, but not so much as to reignite inflation or destabilize financial conditions. Powell’s language reflects that caution, and while markets may have hoped for a stronger dovish pivot, the reality is that the Fed cannot afford to over-promise.

From a trading perspective, the most interesting takeaway is not the cut itself, but the divergence in market behavior: gold and silver at record highs, equities lukewarm, the dollar oscillating rather than collapsing. That mix tells me that traders are searching for conviction, and haven’t found it yet.

For the weeks ahead, I will be watching two variables above all: incoming inflation prints and labor market resilience. If inflation proves sticky, the Fed may slow its easing cycle further, putting a floor under the dollar. If job growth falters, markets may push the Fed into a more aggressive stance, further fueling the gold rally.

Bottom line: the Fed cut was historic as the first of 2025, but not decisive enough to anchor expectations. Until Powell provides clearer guidance, volatility will remain the name of the game — and for active traders, that may be an opportunity in itself.