The US Federal Reserve held its key policy rate unchanged at 3.50%-3.75% on Wednesday, marking its most divided decision since 1992, with three or four policymakers dissenting depending on the source ([1][2][3]). The Federal Open Market Committee (FOMC) voted 8-4 to keep rates steady, with dissenters objecting to the continued bias toward easing ([2][3]). Outgoing Fed Chair Jerome Powell clarified that the debate was about the neutrality of the tone, not the need to hike rates, and stated he would remain on the Board of Governors for an indefinite period after his chairmanship ends ([1][2][3]). Kevin Warsh, nominated by Donald Trump, is widely seen as positioned to assume leadership at the central bank ([3]).
The Fed's hawkish hold and rising inflation expectations, partly driven by a war-driven surge in energy prices and stalled US-Iran peace talks, have bolstered the US Dollar. The US Dollar Index (DXY) trades near 98.95, consolidating gains after the Fed decision ([2]). Markets have sharply reduced bets on further easing by the Fed in 2026 and are now pricing in over a 10% chance of a rate increase by year-end ([1]), while the probability of a rate hike by April 2027 has jumped to nearly 55%, up from 20% before the decision ([2]).
Gold (XAU/USD) rebounded from a monthly low near $4,500, snapping a three-day losing streak and trading around $4,580, up 0.75% for the day ([1]). However, technical indicators remain bearish, with the Relative Strength Index (RSI) near 38 and the MACD line in negative territory, suggesting recovery attempts could struggle while gold stays capped beneath key overhead levels ([1]). The ongoing naval blockade of Iranian ports and disruptions in energy supplies through the Strait of Hormuz, as well as US President Donald Trump's rejection of Iran's peace proposal, continue to fuel inflationary concerns and support the USD ([1]).
The Canadian Dollar (USD/CAD) edged lower, trading around 1.3680, as the USD softened after two days of gains ([3]). Despite lower oil prices (WTI at $104.00 per barrel), Canada's oil and gas sector is attracting renewed attention from global energy majors due to escalating Middle East tensions ([3]). Shell's $16.4 billion deal to acquire ARC Resources highlights this shift, with TotalEnergies, ConocoPhillips, Equinor, and BP reassessing Canadian peers ([3]).
Traders are now awaiting the US Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index, which are expected to inject further volatility into the markets ([1][2]). If these reports exceed expectations, the US Dollar could strengthen further against its rivals ([2]).
CONCLUSION
The Fed's historic rate hold and divided vote have reinforced USD strength amid rising inflation concerns and geopolitical tensions, impacting gold and currency markets. Technical signals suggest gold's recovery may be limited, while the Canadian Dollar faces headwinds from lower oil prices but benefits from renewed sector interest. Upcoming US GDP and PCE data are poised to drive further market volatility and direction.