NEW YORK: Gold prices fell on Wednesday as the dollar and Treasury yields firmed after US inflation data prompted investors to scale back expectations of an over-sized rate cut from the Federal Reserve next week.

Spot gold was down 0.4% at $2,505.17 per ounce at 9:40 a.m. ET (1340 GMT). US gold futures were down 0.4% to $2,533.70.

Following the data, the dollar index was up 0.1% and benchmark US 10-year yields also edged higher, putting pressure on bullion.

US consumer prices rose only slightly in August, but underlying inflation showed some stickiness, which could dissuade the Fed from delivering a half-point interest rate cut next week.

“Inflation is still here. The consumer is still feeling it. If they do a half, it signals they’re throwing in the towel here ... a quarter point is something that they’re almost forced into doing here at this point,” said Bob Haberkorn, senior market strategist at RJO Futures.

Markets are currently pricing in an 85% chance of a 25-basis-point US rate cut, compared to 71% before the data, the CME FedWatch tool showed.

The Fed will lower interest rates by 25 basis points at each of the three remaining policy meetings in 2024, according to a majority of economists in a Reuters poll that found only nine of 101 expected a half-percentage-point cut next week.

“The uptick in core CPI has more or less cemented at 25 bps cut next week... A new all-time high (for gold prices) may have to wait just a little longer,” said Tai Wong, a New York-based independent metals trader.

Markets will now look towards the US producer price index reading and initial jobless claims due on Thursday.