(Bloomberg) -- Gold fell to the lowest in a week after Jerome Powell said that the Federal Reserve is prepared to increase the pace of rate hikes if needed.

The dollar and Treasury yields advanced, weighing on bullion, which fell as much as 1.8%, the most since Feb. 3. The swaps market now showed a shift in bets for the Fed’s next policy meeting on March 22, with a half-point hike seen as more likely than a quarter-point move.

Powell said the US central bank is likely to raise interest rates higher than previously thought and is prepared to speed up the pace of hikes if economic data warrants. 

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said Tuesday in prepared testimony before the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Countering the pressure from rising rates, strong demand from central banks helped to underpin prices in recent months. Data on Tuesday showed China increased its gold reserves for a fourth month in February, joining other Asian nations in raising holdings as the dollar’s strength waned. Turkey has also been a key buyer lately.

“For 2023, we need to consider both macro and demand-side factors, but the new trendline suggests gold is likely to be more reactive to changes in yields than it was in 2022,” Morgan Stanley said in a note. “Central bank purchases may slow down, but jewelry and technology demand could see a boost from China’s reopening.”

Spot gold lost 1.7% to $1,815.10 an ounce as of 3:02 p.m. in New York. Bullion for April delivery slid 1.9% to settle at $1,820 on the Comex. The Bloomberg Dollar Spot Index gained 1%. Silver, platinum and palladium all dropped.

--With assistance from Mark Burton and Jason Scott.

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