Fed rate cut sparks volatility across crypto gold, and FX markets

Many observed that the  Federal Reserve’s first rate cut of 2025 immediately jolted global markets, sending the US dollar to its weakest level since February 2022, pushing Bitcoin above $118,000, and triggering a retreat in gold prices after a record high. The quarter-point cut was historic: it marked the first time in more than 30 years that the Fed reduced rates with core PCE inflation still above 2.9%. The move highlighted a sharp pivot toward supporting the labour market, raising concerns that the US may be drifting toward stagflation.

Key takeaways

• First Fed rate cut with inflation above 2.9% in 30+ years - a break with precedent.
  
• The US dollar fell to its lowest level since February 2022.
  
• Bitcoin climbed above $118,000, supported by ETF inflows and institutional demand.
  
• Gold slipped nearly 1% after touching record highs, but remains up 39% year-to-date.
  
• Fed officials are divided: nine see two more cuts this year, six see none.
  
• Inflation forecast revised upward for 2026; unemployment projected at 4.3–4.5%.
  
• Powell described the move as a “risk management” cut, signalling caution rather than conviction.
  

Dollar weakness: Sliding to its weakest level since 2022

The US dollar reacted sharply to the Fed’s decision, falling to its lowest level in over three years. The decline reflects investor expectations that looser monetary policy will undermine dollar strength and accelerate capital flows into alternative assets. 

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A weaker dollar also reinforces inflationary pressures by making imports more expensive, adding weight to stagflation concerns.

Bitcoin price rises cautiously above $118,000

Bitcoin moved higher on the news, briefly topping $118,000. While the gain was modest, it underscored the crypto market’s resilience and growing institutional demand. Analysts attributed the move to continued ETF inflows and investor confidence that lower borrowing costs will provide liquidity support for risk assets. 

Still, traders remain divided: some argue the cut was largely priced in, while others expect momentum to carry Bitcoin toward the $120,000 mark if supportive catalysts align.

Gold market volatility: Retreat after a record run

Gold prices fell nearly 1% following the announcement, retreating from record highs set earlier in the session. Profit-taking was the immediate driver, particularly after Powell stressed that future cuts would be assessed “meeting by meeting.” 

Despite the dip, analysts say gold remains firmly supported by long-term drivers, including central bank purchases, diversification away from the dollar, and safe-haven demand amid geopolitical frictions. Analysts emphasised that unless gold drops below major support at $3,550, the uptrend remains intact. Year-to-date, bullion is still up nearly 39%.

Fed division fuels uncertainty

The Fed’s updated dot-plot revealed the most divided outlook in years. Nine out of 19 officials projected two more rate cuts in 2025, while six anticipated no further cuts. Only two policy meetings remain this year, amplifying the uncertainty. 

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Stephen Miran, a Trump-era appointee, dissented against the 25 bps cut, pushing instead for a deeper 50 bps move. The lack of consensus highlights the Fed’s struggle to balance inflation risks with labour market weakness.

Stagflation risks intensify

By cutting rates while inflation is still above target, the Fed risks fuelling stagflation - a combination of weak growth, sticky inflation, and rising unemployment. The Fed revised its inflation forecast for 2026 upward from 2.4% to 2.6% and projected unemployment in the 4.3%–4.5% range. 

The labour market has become the priority driver of policy, suggesting the Fed is willing to accept higher inflation in exchange for protecting jobs. This mix of slowing growth and persistent inflation sets a troubling precedent for investors.

At the time of writing, Gold is retreating, with bullish pressure evident on the daily chart and on the volume bars. Sellers are not pushing with enough conviction. If buyers advance, they could breach the $3,700 price level. Conversely, if we see a dip, prices could test the $3,630 support level, with further support levels lying in the $3,325 and $3,280 price levels. 

Bitcoin, on the other hand, inched higher, with bullish pressure resurging on the daily chart. However, the volume bars paint a picture of a tug-of-war between bears and bulls, hinting at a potential consolidation before we see a decisive move. Should prices tumble, we could see sellers test the $114,700 price level, with further support floors at the $107,500 price level. Conversely, should we see a sharp uptick, we could see prices test the $123,000 resistance level. 

Investment implications after the rate cut

The Fed’s historic move reshaped markets in one session: the dollar weakened to multi-year lows, Bitcoin extended its gains above $118,000, and gold paused after a record-setting run. In the near term, crypto may continue to benefit from liquidity expectations, while gold remains supported by long-term safe-haven flows despite short-term profit-taking. For FX markets, further dollar weakness is possible if the Fed follows through with additional cuts. With only two policy meetings left this year and Fed officials deeply divided, volatility across asset classes is likely to stay elevated, leaving investors to balance the promise of liquidity-fuelled rallies with the growing risk of stagflation.

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