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Jerome Powell will leave interest rates untouched at Wednesday’s Federal Reserve meeting, continuing his “wait-and-see” stance observed throughout this year.
The latest CME FedWatch probabilities show a 99.9% chance of rates remaining unchanged Wednesday, while current market pricing indicates an 85.5% probability that US interest rates will remain at 4.25%-4.50% at the July 30 meeting.
As always, chair Powell’s post-decision press conference, and the Fed’s ‘dot plot’ will be closely followed for any clues about potential changes in monetary policy over the coming months.
Recent economic data demonstrate inflation in the US moderating while the jobs market remains robust.
US CPI rose by 0.1% in May and at an annual rate of 2.4%, while the recent US nonfarm payroll data showed 139k new jobs created in May compared to expectations of 126k.
Despite the better-than-expected economic data, Chair Powell remains concerned that the comprehensive “Liberation Day” tariffs announced by President Trump at the beginning of April have yet to be reflected in the economy and economic data.
These tariffs are anticipated to drive inflation higher over the coming months, although the full impact remains unquantified as President Trump continues to modify and delay various tariffs on a regular basis. While the US is making progress with some trade partners, President Trump has stated that a minimum 10% global baseline tariff will remain in place.The long-running conflict between Israel and Iran escalated last week when Israel launched military strikes against Iran’s nuclear and military sites, provoking retaliation from Iran. Israel’s latest warning to 300,000 Tehran residents to evacuate immediately signals a potential further escalation of military action, increasing what is already a highly volatile situation.
Financial markets do not like geopolitical uncertainty and conflict and if the Trump administration is unable to broker a peace settlement, safe-haven assets will remain in demand.
Gold serves as a go-to asset during times of geopolitical uncertainty, and this can be clearly observed in the daily chart. The precious metal has established a series of longer-term higher lows and higher highs from the midSeptember 2023 low around $1,813/oz, with any pullback used as a buying opportunity. A continuation of this trend is evident from mid-May this year, supported by a favourable 50-day simple moving average (red line). The Moving Average Convergence Divergence (MACD) indicator also remains positive, with the 12-period moving average positioned above the 26-period moving average and the MACD histogram in positive territory, albeit marginally.
If gold breaks and closes above its prior all-time high at $3,500/oz, price discovery should drive the precious metal to test round numbers at $3,600/oz and $3,700/oz. Initial support is identified from the 50-day simple moving average, followed by the mid-May swing low at $3,121/oz.
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