Gold price action is reacting to another critical US inflation report on Wednesday as price action remains sensitive to shifting interest rate expectations and movements in the US Dollar.

At the time of writing, the XAU/USD is above $3,350, as traders digest inflation reports and shift focus to concerns related to Fed independence.

The June PPI came in softer than expected, with the monthly headline figure coming in unchanged, below forecasts of a 0.2% increase. On an annual basis, headline PPI rose 2.3%, also underperforming expectations of 2.5% and marking a decline from May's 2.6%.

Core PPI, which excludes food and energy, followed a similar trend, coming in at 0.0% MoM and 2.6% YoY, below both forecasted and previous readings.
However, Industrial Production rose 0.3%, beating forecasts of a 0.1% increase, easing concerns of a stagnant US economy.

The weaker-than-expected numbers suggest easing price pressures at the producer level, potentially reviving market hopes for a more dovish shift in Federal Reserve (Fed) policy and offering near-term support for Gold prices

Daily digest market movers: Gold price reacts to inflation, trade tensions, and talk of replacing Fed Powell

Policymakers at the Fed remain hesitant to pivot away from their restrictive stance without clearer signs of disinflation. This hawkish tone has weighed on Gold, which typically moves inversely to both interest rates and the US Dollar.

Tuesday's Consumer Price Index (CPI) report beat expectations, showing headline inflation rising at an annual rate of 2.7% in June, and core inflation also ticked higher, printing at 2.9% YoY. The data reduced market hopes for a near-term Fed rate cut, reinforcing a more hawkish stance and putting pressure on Gold.

Trade tensions and geopolitical risks remain present, but they've taken a back seat to concerns about inflation and monetary policy.

Growing speculation around Jerome Powell's potential termination has introduced a new layer of uncertainty into the markets. With inflation still running hot and the Fed maintaining a restrictive stance, leadership instability could unsettle investor confidence and rattle rate expectations.

President Trump said Treasury Secretary Scott Bessent is "an option" for the role of the Fed Chair on Tuesday, while he acknowledged Bessent was not his top candidate. Meanwhile, Bessent stated that Trump has no intention to fire Powell but signaled that Trump has begun a formal process to identify Powell's eventual successor.

While the Fed has acknowledged that tariffs could pose inflationary risks, questions about its independence have surfaced amid political pressure and broader economic concerns.

Trump announced a bilateral agreement that sets tariffs on goods imported from Indonesia at 19%, lowered from a threatened 32%. In exchange, Indonesia has committed to purchasing 50 Boeing jets and increasing US energy and agricultural imports.

According to the CME FedWatch Tool, the probability of a rate cut at the September meeting currently stands at 56.1%, while the prospects of the Fed leaving rates unchanged at the same meeting has fallen to 42.5%, down from 42.5% on Tuesday.

Source: Fxstreet