Federal Reserve's July Rate Hike: Market Expectations and Impact
The July monetary policy meeting of the Federal Reserve is scheduled to conclude on Wednesday afternoon. It is widely anticipated that the FOMC will resume its hiking campaign after a one-month break, with a 25 basis points increase in its benchmark rate, bringing it to a range of 5.25% to 5.50%, the highest since 2001. As this move is already fully expected, it is unlikely to cause significant volatility on its own. Instead, traders and investors will focus on the policy guidance that follows.
Unlike previous times, there will be no summary of economic projections provided this time. However, Jerome Powell, the Fed chair, will hold a press conference after the central bank's decision announcement. Despite the weaker-than-expected U.S. CPI report for June, which suggests a more cautious approach, Powell might opt to deliver a hawkish message. This is to prevent financial conditions from easing too much and to maintain flexibility in case inflation rises in the coming months when the annual data's base effects drop out.
If Powell signals that further rate hikes are on the horizon to restore price stability, expectations for the Fed's terminal rate will increase, leading to higher Treasury yields, particularly for short-term ones. Market data indicates that many speculators have taken bearish positions against the U.S. dollar in recent weeks, and a hawkish outcome could trigger a short squeeze, causing them to close their positions at a loss.
Such a short squeeze might prompt a strong rally in the U.S. dollar, which would have a negative impact on precious metals like gold (XAU/USD) and silver (XAG/USD) in the short term. However, it may not result in a major sell-off in this space, as the normalization cycle is likely nearing its end.
However, there is also a less likely scenario to consider where Powell abandons his hawkish stance and adopts a softer tone. If he appears non-committal about further tightening and emphasizes a data-dependent approach, the markets could anticipate an easing cycle in the future, leading to weakness in the U.S. dollar. In this case, both gold and silver would likely experience positive effects.
XAUUSD
SELL 1963 - 1965 🕯🕯
✔️ TP1: 1957
✔️ TP2: 1952
✔️ TP3: 1947
❌ SL: 1968
Unlike previous times, there will be no summary of economic projections provided this time. However, Jerome Powell, the Fed chair, will hold a press conference after the central bank's decision announcement. Despite the weaker-than-expected U.S. CPI report for June, which suggests a more cautious approach, Powell might opt to deliver a hawkish message. This is to prevent financial conditions from easing too much and to maintain flexibility in case inflation rises in the coming months when the annual data's base effects drop out.
If Powell signals that further rate hikes are on the horizon to restore price stability, expectations for the Fed's terminal rate will increase, leading to higher Treasury yields, particularly for short-term ones. Market data indicates that many speculators have taken bearish positions against the U.S. dollar in recent weeks, and a hawkish outcome could trigger a short squeeze, causing them to close their positions at a loss.
Such a short squeeze might prompt a strong rally in the U.S. dollar, which would have a negative impact on precious metals like gold (XAU/USD) and silver (XAG/USD) in the short term. However, it may not result in a major sell-off in this space, as the normalization cycle is likely nearing its end.
However, there is also a less likely scenario to consider where Powell abandons his hawkish stance and adopts a softer tone. If he appears non-committal about further tightening and emphasizes a data-dependent approach, the markets could anticipate an easing cycle in the future, leading to weakness in the U.S. dollar. In this case, both gold and silver would likely experience positive effects.
XAUUSD
SELL 1963 - 1965 🕯🕯 ✔️ TP1: 1957
✔️ TP2: 1952
✔️ TP3: 1947
❌ SL: 1968
Comment:
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