XAU/USD declined around 1.5% on Wednesday, falling from a session high near 4,610 to trade close to 4,540 after touching a session low of about 4,510. Price has carved a series of lower highs and lower lows through the session, with selling extending after the Federal Open Market Committee (FOMC) announcement before a partial bounce off the intraday low.
The Federal Reserve (Fed) held the federal funds rate at 3.50% to 3.75% for a third consecutive meeting, sharpening its inflation language to “elevated” from “somewhat elevated” while citing higher global energy prices and a high level of uncertainty around Middle East developments. The FOMC declined to signal when policy may shift next, saying it would carefully assess incoming data and the balance of risks. The 8-4 vote produced the most dissents since October 1992: Stephen Miran preferred a 25-basis-point cut, while Beth Hammack, Neel Kashkari, and Lorie Logan voted to hold but opposed the easing bias added to the statement.
Gold sold off through the announcement as the firmer US Dollar and steady nominal yields outweighed the dovish reading of the easing-bias inclusion, with bullion extending its session-long retreat after the decision.
XAU/USD 5-minute chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/xau-usd-slips-below-4-550-after-the-feds-most-divided-hold-since-1992-202604291822
