Interest rates have been kept high to squeeze the economy and slow down price rises – reducing inflation.

In a long-awaited move, the Bank of England cut the base rate from 5.25% to 5.0% last month- and is meeting again tomorrow.

This morning’s inflation data, however, has furthered dampened hopes of another cut tomorrow, analysts say. 

The markets now put the chance of a 0.25 percentage point cut at 26% – it was 37% before the release of inflation data an hour ago.

Capital Economics analysts say the next cut is expected to take place in November. 

“The good news on inflation in recent months did not last for long. As we had expected, food and fuel price inflation exerted some downward pressure on CPI inflation,” Ruth Gregory, deputy chief UK economist, says.

“But this was offset by the upward effects from rising furniture/household equipment inflation, recreation/culture inflation and a surprisingly large rise in airfares inflation from -10.1% in July to +11.9% in August. 

“As a result, core inflation crept back up from 3.3% to 3.6%. And after falling in July to its lowest rate in two years of 5.2%, services inflation rebounded to 5.6% in August.”

Two other measures were below predictions: CPI was below the 2.4% first predicted in August and services inflation was 5.6%, below the Bank’s prediction of 5.8% (some of which was due to the rise in airfares, which are volatile in August anyway). 

“But there’s no denying that services inflation is still too high for the Bank of England’s liking. And CPI inflation will almost certainly rise in the coming months, perhaps to 2.9% in November due to higher utility prices before it falls back towards 2.0% in mid-2025. So the Bank may start to worry about the trajectory of CPI inflation and services inflation,” Ms Gregory says.

“Overall, a pause on interest rate cuts was already expected tomorrow and today’s release cements that view.”

Oil prices increased by approximately 2% on Monday, driven by ongoing disruptions to U.S. Gulf oil infrastructure, which offset persistent concerns about demand following new data from China. Investors are also anticipating a potential reduction in U.S. interest rates later this week.

By 1315 GMT, Brent crude futures for November rose by $1.40, or 1.96%, reaching $73.01 a barrel. Meanwhile, U.S. crude futures for October climbed by $1.60, or 2.33%, to $70.25 per barrel.

The market is expected to remain cautious until the Federal Reserve announces its interest rate decision on Wednesday, Phillip Nova analyst Priyanka Sachdeva, was quoted as saying by Reuters.

Sachdeva further noted that prices continue to be supported by supply concerns, as some production capacity remains offline in the Gulf of Mexico.

What’s weighing on crude oil prices?

The market remains cautious ahead of the Federal Reserve’s interest rate decision scheduled for Wednesday.

Traders are increasingly leaning towards a 50 basis point rate cut by the Fed, rather than a 25 basis point reduction, as indicated by the CME FedWatch tool that monitors Fed fund futures.

Typically, lower interest rates decrease borrowing costs, which can stimulate economic activity and increase demand for oil.

A 50 basis point rate cut by the Federal Reserve could indicate underlying weakness in the U.S. economy, which may raise concerns about future oil demand, OANDA market analyst Kelvin Wong, was quoted as saying by Reuters.

China’s industrial output growth, the highest oil importer globally, slowed to a five-month low in August, with further declines in retail sales and new home prices.

Additionally, the country’s oil refinery output decreased for the fifth consecutive month due to weak fuel demand and reduced export margins.

Last week, both Brent and WTI crude prices rose by approximately 1%, yet they remain significantly below their average prices for August, which were $78.88 and $75.43 per barrel, respectively. This decline was influenced by concerns over demand that emerged at the beginning of the month.

(With inputs from Reuters)

• Gold price bounces after the previous retreat from record highs, as Fed verdict looms.  
• The US Dollar returns to the red amid pre-Fed caution and sluggish Treasury bond yields.  
• Gold price could retest lifetime highs at $2,590 amid the bullish daily RSI and while above $2,560.

Gold price is finding some fresh demand near $2,570 early Wednesday, as buyers look to fight back control following the previous day’s correction from record highs of $2,590. Traders, however, could refrain from placing fresh directional bets on Gold price in the lead-up to all-important US Federal Reserve (Fed) monetary policy announcements.

Gold price eyes Fed interest rate decision and Powell speech

On the Fed day, markets continue to price in a 65% probability of 50 basis points (bps) interest rate cut, the CME Group’s FedWatch Tool showed, reviving the selling interest around the US Dollar (USD), as the US Treasury bond yields also turn defensive amidst the market caution.

Thus. Gold price attempts to retake the all-time-high just shy of the $2,600 mark, with eyes on the Fed verdict, Chairman Jerome Powell’s press conference and the Dot Plot chart, all of which will help gauge the US central bank’s future policy action.

If the Fed delivers a 25 bps rate cut later this Wednesday, it could fuel a knee-jerk US Dollar upswing. However, the immediate reaction to the Fed announcements could be overshadowed by the implications of the Fed’s projections and Powell’s words. Gold price, therefore, remains subject to intense volatility during the Fed event.

An outrightly dovish outcome and rate projections by the world’s most powerful central bank could prompt Gold price to refresh record highs at the expense of the US Dollar. “A dovish Fed on a substantial easing path should generally lead to a weaker dollar,” said Nathan Swami, head of currency trading at Citi in Singapore.

In contrast, should the Fed acknowledge potential upside risks to inflation and maintain a cautious tone, it could bring the hawks back in the game, weighing negatively on the non-interest-bearing Gold price.

Gold price corrected briefly from record highs on Tuesday, courtesy of a profit-taking spree in the US Dollar ahead of the Fed event while strong US Retail Sales data also contributed to the resurgent USD demand. US Retail Sales rebounded by 0.1% MoM in August, data showed on Tuesday, against expectations for a 0.2% contraction. Data somewhat eased fears over a potential US ‘hard-landing’.

Gold price technical analysis: Daily chart

Gold buyers regain control, as the 14-day Relative Strength Index (RSI) remains comfortably above the 50 level, having eased off from near the overbought territory.

The optimism prevails so long as they defend the one-and-a-half-month-old symmetrical triangle target now support at $2,560.

That said, the immediate resistance is seen at the record high of $2,590, above which the $2,600 level will be tested.

Acceptance above that level will call for a test of the $2,650 psychological barrier.

If the Fed disappoints the doves, Gold price could witness a fresh sell-off, which could challenge the August 20 high of $2,532.

Additional declines will threaten the 21-day Simple Moving Average (SMA) at $2,522, below which the $2,500 mark will be on sellers’ radars.

• Silver is range-bound, amid bullish momentum, but flattening RSI signals indecision.
• A break above $31.09 could see Silver testing $31.75 and the YTD high at $32.51.
• On the downside, $30.52 is first support, followed by $29.86, with additional levels at the 100-DMA ($29.36) and 50-DMA ($28.98).

Silver price consolidates for the second straight day, prints back-to-back doji’s a sign that neither buyers nor sellers control the grey’s metal price action. At the time of writing, XAG/USD trades at $30.69, virtually unchanged, as the Wednesday Asian session commences.

XAG/USD Price Forecast: Technical outlook

Silver has been subdued during the last few days as traders brace for the Fed’s decision.

Momentum remains bullish, as portrayed by the Relative Strength Index (RSI), but its slope turned flat, hitting indecision amongst investors.

If XAG/USD clears the current week’s high of $31.09, this could underpin Siver’s to challenge the July 11 high at $31.75 ahead of the year-to-date (YTD) high of $32.51. On the other hand, if Silver drops below the September 17 daily low of $30.52, it would expose the September 13 low of $29.86, followed by the 100-day moving average (DMA) at $29.36, followed by the 50-DMA at $28.98.

XAG/USD Price Action – Daily Chart

Support is at or Above 200-Day MA

If a deeper pullback comes before new trend highs, natural gas should find support at or above its 200-Day MA, which is now at 2.24. A bullish breakout of the 200-Day line triggered last Wednesday, and it was confirmed the following day by a daily close above the line. Previously, natural gas had traded below the 200-Day MA since July 2. Since the price of natural gas moved away from the line following the breakout, it is the market’s way of confirming subsequent strength.

Therefore, the first real pullback to test support around the 200-Day line should be successful. If it is not, and natural gas falls below the 200-Day line, it will likely find support around the 20-Day and 50-Day MAs, from 2.18 to 2.16, respectively. However, that would be a deeper pullback that negates some of the strength indicated by the bullish breakout above the 200-Day line.

Higher Targets Remain

There are several higher targets yet to be tested. The first target zone is from 2.52 to 2.54. It is derived by the 50% retracement at 2.52, and an initial target for a rising ABCD pattern at 2.54. That price range is followed by a range from 2.65 to 2.72. The top of the range is significant is it marks an initial target derived from measuring the recent double bottom. A bull breakout of the double bottom triggered last Wednesday on a rally above 2.30. The 61.8% Fibonacci retracement is also contained within the price zone at 2.67.

Monthly Confirms Strength

Dynamics seen in the monthly chart confirm a bullish outlook. A bull breakout on the monthly time frame triggered at the same time the double bottom triggered as the prior swing high of 2.30 was also a monthly high. Since it covers a larger time frame it is given greater significance than the shorter weekly and daily charts. It just triggered last week and continues to point to higher prices for natural gas.

For a look at all of today’s economic events, check out our economic calendar.

XAU/USD Current price: $2,562.90

• Better than-anticipated United States data maintained investors cautiously optimistic.
• The Federal Reserve will announce its decision on monetary policy on Wednesday.
• XAU/USD is poised to extend its decline in the near term, bulls may surge on dips.

Gold price is marginally lower on Tuesday, with XAU/USD trading in the $2,560 region in the American session. The US Dollar gathered modest strength ahead of Wall Street’s opening amid better-than-anticipated United States (US) data. Local indexes hold on to modest gains, reflecting the optimistic mood that undermines demand for the safe-haven metal.

Still, financial boards’ activity is limited ahead of major central banks’ announcements. The Federal Reserve (Fed) will kick-start the wave of announcements on Wednesday, followed by the Bank of England (BoE) on Thursday and the Bank of Japan (BoJ) on Friday. The Fed is widely anticipated to trim interest rates for the first time in years, a movement that has been priced in long ago. The BoE, on the other hand, will likely remain on hold while speculative interest sees the BoJ hiking rates.

In anticipation of the Fed, speculative interest has priced in a 25 basis points (bps) rate cut, although there are some hopes the central bank will go for a wider trim of 50 bps. The level of aggressiveness from US officials will determine what will happen with Greenback on Wednesday. The more dovish the decision, meaning a 50 bps trim and anticipation of more cuts coming, the more will suffer the USD. The US Dollar, on the other hand, can recover sharply should the central bank deliver a more hawkish stance.

XAU/USD short-term technical outlook  

The daily chart for the XAU/USD pair shows the slide seems corrective. The pair keeps developing above all its moving averages, with the 20 Simple Moving Average (SMA) partially losing its bullish strength but well above the longer ones, at around $2,520. Technical indicators, in the meantime,  remain well above their midlines, although lacking clear directional strength. The Relative Strength Index (RSI) indicator eases from near overbought readings but not enough to anticipate a steeper decline.

In the near term, however, the risk skews to the downside. In the 4-hour chart, XAU/USD has broken below a bullish 20 SMA, while the 100 and 200 SMAs aim marginally higher, far below the current level. Finally, technical indicators aim south almost vertically, currently challenging their midlines and hinting at another leg south, particularly if Gold pierces the intraday low at $2,561.65.

Support levels: 2,561.65 2,550.00 2,542.40

Resistance levels: 2,574.80 2,590.00 2,605.00