Fed Chair Wash delivered hawkish remarks during the post-meeting press conference. He stated that US inflation remains elevated and its persistence has exceeded expectations. A string of summer economic indicators has shown no signs of sustained inflation cooling. The Fed’s top priority is to uphold its price stability mandate. Although the Fed cannot directly control crude oil, food and other commodity prices, it must prevent energy price increases from spilling over into broader inflation. The newly released Summary of Economic Projections (SEP) and dot plot significantly upgraded rate forecasts. Among 18 policymakers, 16 expect at least one additional 25-basis-point rate hike by the end of 2026, putting the year-end policy rate potentially in the 4.00%–4.25% range. Forecasted median rates for 2027 and 2028 were also lifted, signalling that high interest rates will remain in place for longer.
 

Foreign Exchange Market Reaction

Immediately after the policy release, the US Dollar Index surged and briefly reclaimed the 100 level. EUR/USD and GBP/USD both declined, while USD/JPY rose sharply and the yen came under renewed pressure. The market logic is that the hawkish dot plot lifted the anchor for US Treasury yields. Higher nominal and real yields on US bonds enhance the appeal of dollar-denominated assets, drawing capital back into USD assets. Forex traders interpreted the Fed’s stance as indicating the tightening cycle is not over. Short-term bullish sentiment on the dollar has recovered, and non-US currencies are generally facing corrective pressure. Nevertheless, institutional investors stressed the need to continuously monitor US inflation and employment data. A rapid drop in core PCE would trigger a revision to rate hike expectations, and the dollar rally carries risks of pullbacks.
 

International Gold Market Performance

Gold is a non-interest-bearing asset and bore the brunt of rising real yields. COMEX December gold futures settled down $30.3 at $4302.5 per ounce, a 0.70% decline, with an intraday low of $4273.3/oz. Spot gold in London closed at $4263.53 per ounce, falling 0.69% and hitting a one-month low.
 

The short-term bearish driver stems from higher opportunity costs of holding gold due to Fed rate hikes. A stronger dollar raises procurement costs for overseas gold buyers and triggers liquidation of long precious metals positions. That said, multiple major investment banks believe medium-to-long-term support for gold remains intact. Geopolitically driven energy concerns, persistent large US fiscal deficits, and ongoing gold purchases by global central banks will offset pressures from monetary policy. Goldman Sachs maintained its 2026 year-end gold price target of $4900 per ounce. State Street Global Advisors is bullish on gold, forecasting that the metal could reach $5000/oz within the next six months. Near-term price action will be a tug-of-war between real yields and safe-haven buying demand, with gold volatility set to expand.
 

Summary of Institutional Views

1. Short term: The Fed’s hawkish comments favour a stronger dollar and weaker gold. Precious metals are expected to trade mostly on a soft footing. US core inflation and non-farm payrolls should be closely watched. Continued strong data will further reinforce rate hike expectations.
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3. Medium to long term: The duration of high interest rates, US debt issues and global geopolitical developments will be core drivers for gold pricing. Once inflation hits a turning point, markets will price in rate-cut expectations and gold may resume its uptrend.
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5. Risk note: A renewed escalation of geopolitical conflicts such as in the Middle East could see safe-haven buying temporarily offset selling pressure from rate hikes and spark a gold rebound.