Insights 
VT 
Markets are shifting away from Middle East tensions, leading to rising equities and falling oil prices.
Crude oil prices are stabilizing as concerns about supply decrease, following tensions in the Middle East. Israel claims to have destroyed a third of Iran’s missile launchers, and the EU is open to accepting a 10% tariff from the US under certain conditions.
India plans to finalize a deal with the US by July 9, while the US is encouraging Vietnam to reduce its reliance on Chinese technology. The European Central Bank, represented by Nagel, has not signaled any pause or rate cut at this time. Italy’s final Consumer Price Index (CPI) for May remains at 1.6%, unchanged from the preliminary figure, and Swiss producer and import prices fell by 0.5% in May.
NZD/USD rises to about 0.6040 as risk appetite increases amid Middle East tensions
NZD/USD has sharply risen to nearly 0.6040 as demand for riskier assets increases, despite ongoing tensions between Israel and Iran. Israel has targeted Iranian military and nuclear facilities to slow their progress on nuclear weapons.
This week, many expect the Federal Reserve to keep interest rates between 4.25% and 4.50%. This decision could affect the USD, which has slightly dropped, bringing the US Dollar Index down to about 98.00.
Currency Movements
In currency movements, the New Zealand Dollar has performed well against the Japanese Yen. We are waiting for the retail sales data for May, which is expected to decline by 0.7%, to understand consumer spending trends better. The Federal Reserve’s future guidance is vital for market sentiment. Any future rate changes will depend on the Fed’s economic outlook and policies. The Fed’s views on inflation and employment will shape upcoming monetary policy. The recent rise in NZD/USD, nearing 0.6040, showcases growing interest in higher-yield investments. This increase is happening alongside ongoing geopolitical concerns in the Middle East. Israel’s strikes in Iran are designed to hinder nuclear development progress. Although these events usually create caution in the markets, current trends suggest that investors are downplaying some risks. Central to this situation is the Federal Reserve. They are expected to keep interest rates in the 4.25–4.50% range this week. This decision won’t happen in isolation. A hold, paired with cautious messaging, may allow non-dollar currencies to gain strength, depending on how the Fed communicates its future outlook. The recent softness in the US Dollar Index – now just below 98.00 – indicates a temporary favoring of other currencies as central bank rate differentials are reevaluated.New Zealand And Japanese Yen Analysis
The New Zealand Dollar’s performance against the Japanese Yen is noteworthy as it continues to rise, likely due to differing policy approaches. We are closely monitoring retail sales in New Zealand, expected to drop by about 0.7% for May. If this decline is confirmed, it could indicate weakening consumer spending and dampen economic optimism. The Reserve Bank has stressed the importance of reacting to new data, including inflation rates, labor market indicators, and global risk shifts. This week, the markets will scrutinize every word from the Fed, not just for the rate decision, but for cues on future economic conditions. Our focus is not only on immediate statistics. The overall message regarding inflation management and employment goals will influence future demand for currencies. Market positioning will need to reflect the tone of this week’s decision more than the decision itself. If the Fed seems less vigilant about inflation, we might see a weaker dollar and a boost for the Kiwi and Australian dollars. However, if retail sales unexpectedly show resilience, any bounce could be seen as supportive of growth. Yet, it may not be enough for central banks to change policies quickly. Timing is essential here. Investors should position themselves carefully, especially in forward-dated structures that inherently reflect expectations about the Fed’s next moves. We will be monitoring implied volatility on short-term options as a measure of market expectations. If pricing remains stable after the decision, it could suggest that participants are anticipating more than just interest rate holds – they may be waiting for key turning points. During such times, models based on past volatility may not provide adequate protection; flexibility is crucial. Create your live VT Markets account and start trading now.Despite fluctuating crude prices, the Canadian dollar stays strong against a weakening US dollar.
The Canadian Dollar (CAD) is holding its ground against a weaker US Dollar (USD). Its performance during the recent Israel/Iran conflicts has been average compared to other major currencies.
Even with rising oil prices, the CAD has not seen significant gains and has been outpaced by the Norwegian Krone (NOK) and Mexican Peso (MXN). The relationship between CAD and West Texas Intermediate (WTI) crude oil is currently low, showing a negative 1-month correlation of -17% and a 10-day correlation of -38%.
Impact of Geopolitical Events on CAD
Disruptions in Iranian oil supply or shipping could lead to higher crude prices, which might benefit the CAD. Right now, the strength of CAD mainly comes from the weakening USD. Progress made at the G7 meeting could also provide additional support. Currently, the CAD is trading close to its fair value estimate of 1.3588. The USD continues its downward trend, with resistance levels around 1.3650/1.3660 and 1.3730, suggesting potential further declines towards 1.34. Investors should be mindful of risks and conduct thorough research before acting. The USD is facing pressure, and ongoing losses could further impact the CAD. Discussions around geopolitical tensions, interest rate decisions, and China’s economic outlook will keep global markets active and influence currency trends. The Canadian Dollar has remained steady, mostly due to the general weakness of the US Dollar. Since the escalation of tensions between Israel and Iran, the CAD has been relatively balanced among major currencies—not too strong or too weak. In contrast, currencies like NOK and MXN have performed better, indicating that oil prices have not positively impacted the CAD as expected. Despite oil prices rising, the Canadian Dollar’s response has been muted. Recent data shows a slightly negative correlation of -17% between CAD and WTI crude over the last month, and a -38% correlation over the last 10 days. This suggests that oil, which typically supports the CAD, hasn’t been providing the usual lift. However, should tensions in the Middle East disrupt oil supplies, crude prices might increase significantly. In such a scenario, it would be important to monitor if the CAD and oil prices reconnect. The effect on the CAD would depend on not just the price change but also the Bank of Canada’s response and shifts in market expectations around interest rates.Factors Influencing CAD Movement
Currently, the CAD is trading close to what many models suggest is fair value, with 1.3588 serving as a benchmark. The continued downtrend of the USD suggests potential for more strength in CAD, provided there are no sudden reversals in US economic data. There are resistance points around 1.3650–1.3660 and again at 1.3730. If pressure on the USD persists, a drop to around 1.34 is possible. In the upcoming weeks, it will be crucial to observe not just interest rates or oil prices, but how they interact with external risks—especially concerning China’s economy, outcomes from the G7, and any new central bank announcements. These elements will shape capital flows and consequently influence volatility and market trends. Traders focused on CAD should pay attention to daily trading volumes, positioning data, and expectations for interest rates. We’ve noticed that currencies are reacting more swiftly to changes in forward-looking guidance, and CAD is no exception. If global risk sentiment shifts, movements could occur rapidly. Keeping an eye on the USD downtrend is critical. If it continues to decline, more strength for CAD could follow. But be watchful for changes. A shift in geopolitical dynamics or unanticipated strength in US economic data might quickly bolster the USD, especially if bond yields rise above current expectations. In this fast-moving market, simply reacting to headlines or one-off price changes won’t suffice. Maintain a close watch on movements across different assets—particularly commodities and yields—and avoid relying too heavily on historical correlations that may not be relevant at this time. Create your live VT Markets account and start trading now.The market has priced in tariffs, lessening their impact on global growth and negotiations.
The EU is reportedly willing to accept a 10% flat tariff rate from the US if certain conditions are met. Earlier negotiations were tough, influenced by a past threat of a 50% tariff from Trump, which pushed talks to speed up.
From the market’s perspective, businesses expect an average tariff of around 10%. Many are preparing for tariffs between 10% and 20%. The original deadline of July 8th for trade discussions, set in April, is no longer a priority.
Negotiation Dynamics
US Treasury Secretary Bessent indicated that the deadline could be extended for countries negotiating sincerely with the US. This has eased the urgency of the deadline. Markets are optimistic about global growth. Positive indicators include potential trade deal progress, fiscal expansions, and central bank easing. A key risk to this growth is the potential failure of an important bill. If it does not pass, growth expectations may change, affecting risk assets. However, the chances of this bill being rejected are currently low. Another risk to consider is inflation. Current data shows a trend of disinflation, but inflation often lags behind other economic indicators. The EU seems open to settling for a 10% flat tariff on certain goods from the US, as long as conditions are met. Talks have become more flexible since earlier pressures from increased tariffs in the past. Negotiations are now seen as less urgent, especially after Bessent highlighted that countries negotiating in good faith won’t be rushed. This shift has brought down short-term urgency, leading to reduced volatility around these talks. Traders are refocusing on broader economic indicators now, moving away from strict deadlines. Market reactions indicate that businesses are prepared for a 10% tariff, with many expecting rates between 10% and 20%. Current corporate guidance supports this outlook, so there’s little need for significant shifts right now.Policy Visibility
In the near term, attention should remain on policy visibility and upcoming legislation over the next month. One particular bill is expected to pass, but if it stumbles, it could lead to changes in growth forecasts. This would impact equity risk pricing and may cause some temporary pressure on cyclical stocks. Disinflation trends are still a major factor. Recent data supports this, but it’s important to remember that inflation data can lag. Core inflation measurements might respond slowly. When traders rely too much on initial inflation readings, abrupt adjustments can occur. However, weak consumption and moderate wage growth should keep inflation expectations stable for now, unless a surprising monthly report shifts them. Instruments linked to interest rate expectations align with a dovish stance from central banks. Implied volatility remains below the averages of recent months, consistent with the current policy signals. There’s room for surprises, particularly if growth exceeds expectations in Q3, but the general trend is largely priced in. Assuming that US-EU trade talks alone will significantly change market trends would be misleading. Trade news might lead to temporary volume spikes or slight shifts in short-term curves, but without unpredictable changes in terms, the market reaction should stay subdued. As a result, there’s a rebalancing towards macroeconomic indicators. Traders should consider the risk of being overly confident about disinflation. Delays in data, even by weeks, can lead to significant shifts in pricing. This aspect is crucial to monitor. The market is settling back into a pattern where it responds to a few key indicators, none of which provide a complete picture on their own. Trading based purely on headline updates tends to have a short lifespan. Moving forward, it will be the interplay of policy direction, corporate adjustments, and the pace of inflation shifts that really matters. Create your live VT Markets account and start trading now.At the start of the week, GBP/USD stays steady, trading just above 1.3550 amid uncertainty
### GBP/USD Remains Steady
GBP/USD held steady at the beginning of the week, trading above 1.3550. The currency pair stayed within a tight range as traders awaited key meetings from the Federal Reserve and the Bank of England.
On Friday, the US Dollar received a boost from safe-haven buying amid growing geopolitical tensions between Israel and Iran. Although GBP/USD ended the previous week lower, it bounced back on Monday morning, trading around 1.3570.
Technical analysis shows a weakening bullish trend, with GBP/USD staying near an ascending channel pattern and remaining above the nine-day Exponential Moving Average (EMA), suggesting short-term strength.
The 14-day Relative Strength Index (RSI) is above 50, indicating a positive outlook. The Pound Sterling showed resilience against the Dollar, reaching a 39-month high above 1.3600. After a period of consolidation, GBP/USD gained momentum mid-week, peaking near 1.3635, its highest since February 2022. This trend highlights the exchange rate’s strength in recent weeks.
### Market Positioning and Central Bank Meetings
At the week’s start, GBP/USD stabilized above 1.3550, with little desire to break out of its range as traders focused on central bank policy signals. Market positioning remained cautious due to the upcoming meetings of the Federal Reserve and the Bank of England. These events can quickly change market sentiment regarding interest rates and economic forecasts.
On Friday, the US Dollar clearly gained traction, driven not by strong data but by a rush to safety following political tensions between Israel and Iran. In uncertain times, the Dollar usually attracts buyers, causing other currencies like Sterling to dip temporarily. However, despite the geopolitical concerns pushing the pair lower toward the weekend, the Pound began the week regaining lost ground at around 1.3570.
From a technical perspective, traders should pay attention to chart patterns. GBP/USD is still trading above the nine-day EMA, a position that tends to favor upward movements. However, the upward momentum seems to be fading, indicating that buyers may be hesitant. This is evident in the RSI, which, while above 50 and maintaining a bullish signal, lacks aggression.
Past price movements provide further context. The Pound previously rose past 1.3600, touching a peak it hadn’t seen since early 2021—specifically, February 2022. The increase to 1.3635 reflects a market eager to build on gains after breaking free from a prolonged holding pattern. This rebound followed a significant consolidation phase, where tighter trading bands were established before pushing higher.
Given this backdrop, it’s crucial to monitor levels like 1.3550 and 1.3630 as near-term support and resistance. A close below the nine-day EMA, especially if accompanied by a weakening RSI, could lead to a drop toward the next support level around 1.3480. If resistance at 1.3635 is decisively broken, we could see the price move toward 1.3700.
### Risk Management and Geopolitical Impact
For those managing derivative exposure, careful risk assessment at these inflection points is essential. The pound has strengthened partly due to more stable UK political conditions and milder inflation figures, but this stability may soon be tested depending on the Bank of England’s stance. Meanwhile, the Fed’s policy remains closely tied to inflation data and the resilient labor market. If the Fed expresses concern over persistent inflation, the Dollar may quickly recover lost ground.
Volatility often spikes around interest rate decisions and forward guidance, so anticipating larger intraday fluctuations this week is sensible. Paying attention to implied volatility is wise, as it has been trending lower, suggesting that the market could be caught off-guard by any surprises from central banks. Options traders on GBP/USD might consider revisiting straddle or strangle strategies, especially given that prices are near multi-year highs.
Geopolitical risks are again coming to the forefront of trading. Even short-lived flare-ups can lead to rapid gains in globally favored currencies and sudden downturns in high-yielding or politically sensitive currencies. Option premiums may be underestimating this geopolitical risk if markets are too focused on inflation alone.
In summary, we stay patient but vigilant. Price levels are tight, the directional bias is softening, but the upcoming schedule of central bank meetings and geopolitical events offers numerous opportunities, as long as position sizing reflects the risks ahead.
Create your live VT Markets account and start trading now.
Analysts observe that increased risk appetite weakens the US Dollar and strengthens the ILS.
The US Dollar is falling, crude oil prices are decreasing, and the Israeli Shekel is gaining strength by about 2%. Overall, market sentiment towards risk is improving at the beginning of a busy week.
The DXY Index is expected to stay between 90 and 95. While tensions in the Middle East persist, the situation is under control for now. President Trump’s remarks suggest that the US will not get involved immediately, leaving future developments uncertain.
Key Events This Week
This week, all eyes are on the Bank of Japan, the Federal Reserve, the Swiss National Bank, and the Bank of England as they make policy decisions. The G7 summit in Canada is also significant. The Swiss National Bank is likely to lower its policy rate by a quarter-point, and guidance on future policies will be crucial, particularly from the Federal Reserve. At the G7 summit, ongoing trade discussions could enhance positive risk sentiment if progress is made. The US Dollar had a brief uptick due to geopolitical risks, but overall downward pressure remains. The DXY continues its decline, and unless geopolitical tensions rise again, a further drop is likely. With the US dollar in a downward trend and oil prices declining, there is a shift in the global market towards less defensive strategies. Risk appetite is starting to grow again, aided by a relatively stable geopolitical situation. The Shekel’s gain of roughly 2% signals investors are returning to higher-yielding currencies. Looking at the larger picture, the DXY Index, which measures dollar strength, is still on a downward path, aiming for the 90-95 range. This projection could change only if external factors push traders back to the safety of the dollar. Recent Middle East tensions haven’t worsened, and Trump’s comments suggest no immediate military action, so we don’t anticipate any sudden shifts. This week is a crucial moment for the markets. Updates from the Federal Reserve, Bank of Japan, Bank of England, and Swiss National Bank will be important. The focus is especially on the Federal Reserve—how Chair Powell communicates plans for rates may matter more than any changes in the rates themselves. Although no major changes are expected from the Fed or the others besides Switzerland, forward guidance could lead to adjustments in positioning.Implications For The Swiss National Bank And G7 Summit
The Swiss National Bank is set to cut rates by a modest quarter-point. Their hesitation to heavily intervene, combined with lower inflation, allows them to take action now. We should pay close attention to currency strength for both the SNB and the Bank of Japan, particularly if their currencies strengthen against the dollar. At the G7 summit, trade discussions will be back in focus. Any positive movement, especially involving the United States, could increase risk appetite in the markets. Such resolutions could weaken the dollar’s limited appeal as a safe haven and continue its downward trend. It’s important to note that the recent rise in the USD was more of an immediate reaction and less based on solid fundamentals. As this sentiment cools, we are likely returning to a phase where interest rate expectations and growth rates take precedence—both of which currently favor a weaker dollar. Volatility might increase leading up to the central bank announcements, but traders should watch for changes in yields, especially for long-term Treasuries. Any adjustment there could influence FX markets and determine if the USD finds temporary support. There’s also a growing likelihood that expectations for more Fed rate cuts this year could solidify, further pressuring the dollar. In summary, market participants should be cautious of unexpected news, whether geopolitical or from central bankers. However, if no new shocks emerge, the overall outlook suggests more weakness for the dollar, slight support for currencies that import energy, and a continued convergence of central bank policies, mainly affecting the dollar. Create your live VT Markets account and start trading now.Israel’s military reportedly disables a third of Iran’s missile launchers, affecting conflict dynamics and investor sentiment.
The Israeli Defence Forces have reportedly taken out about one-third of Iran’s missile launchers. This move is both a tactical and strategic shift that could change the course of the conflict.
With fewer missile launchers, Iran’s ability to respond effectively could be weakened. This situation might lead Iran to consider negotiations. As the potential for missile launches decreases, Iran could face more pressure, creating a chance for de-escalation and diplomacy.
Impact on Markets
The decline in threats from Iran might ease initial market worries, helping to stabilize oil prices. As the chances of escalation shrink, stocks in energy, defense, and emerging markets may also stabilize, promoting a renewed interest in political solutions. Israel’s ongoing efforts to weaken Iran’s missile capabilities could increase diplomatic pressure on Tehran. This might reduce Iran’s ability to retaliate in kind. For the markets, this change could indicate a shift from geopolitical risks to potential recovery opportunities if diplomacy is pursued. However, the possibility of unexpected escalations from Iran or its allies still exists, so careful observation is necessary. We have seen military tactics influence the direction of a larger regional conflict. With about one-third of Iran’s missile launchers reportedly dismantled, the immediate threat from Tehran’s military forces has significantly decreased. This reduction is meaningful; it directly limits Iran’s ability to retaliate. Instead of retaliating, they may now have more motivation to negotiate. As one party’s ability to project power weakens, their options quickly shrink.Impact on Diplomacy and Trading
This change is significant. With Iran’s missile capabilities impaired, there is a stronger need for diplomacy. Markets usually respond predictively when military pressures ease—fear gives way to calculated optimism. After an initial spike, energy prices are beginning to stabilize. The likelihood of a prolonged confrontation diminishes when one side suffers a structural setback. Defensive stocks saw short-term gains but may return to previous levels unless new threats emerge. Some emerging markets have found stronger footing—not a rally, but a solid stabilization based on changing odds of conflict. From a trading standpoint, this information is a strong signal. Risk premiums may decrease as the number of missiles and their deployment abilities are confirmed to be reduced. If Iran’s missile capabilities continue to decline— and they might—investors could begin to show renewed interest in higher-risk assets. This won’t happen immediately, but we can expect shifts in market positioning as options and futures pricing adjusts to lower volatility. Iran may still consider retaliatory actions, either directly or through regional allies. They are unlikely to accept losses without a response. Any escalation could quickly disrupt the current calm, creating tension in the trading world. We’re not expecting peace; we are just assessing capabilities, and for now, Iran’s ability to strike back seems reduced. This doesn’t eliminate risk; it merely changes how we evaluate it. So far, Iran’s limited responses indicate they may be choosing to wait. They might also be shifting strategies through partners who can respond in less predictable ways. Regardless, this trend could lead to a temporary decline in volatility. For now, options traders may notice that implied volatility is starting to stabilize in certain sectors, while hedging becomes more moderate in spot markets. We need to stay alert to new developments. Each destroyed launcher is not just lost equipment; it represents valuable data. If these operations continue without Iranian retaliation, we may see a gradual easing of geopolitical tensions. This could narrow the range of expected outcomes, which we monitor through the volatility curve and correlations across commodities and sector-focused indices. Defense is not the only factor influencing the situation. At this point, we will adjust our investment strategy accordingly—not exiting or doubling down, but rather reallocating capital based on capabilities, not just intentions. Markets are driven by what is feasible, and currently, it appears that one-third of Iran’s missile capabilities are out of commission. Create your live VT Markets account and start trading now.Risk appetite returns, helping the EUR/USD pair recover from recent losses against the US Dollar
The Euro rose on Monday, regaining ground against a weaker US Dollar as market sentiment improved. The EUR/USD pair climbed to above 1.1580 from a low of 1.1490, following tensions in the Middle East, particularly Israel’s actions against Iran.
Although hostilities continued over the weekend, the situation didn’t escalate regionally. Iran did not threaten the Strait of Hormuz, an important route for oil, which could have drawn the US into the conflict.
Market Reactions and Dollar Decline
The US Dollar, which had gained due to safety concerns, is now falling. This is driven by ongoing uncertainties around tariffs and a lack of progress in trade negotiations. Investors are also focused on the Federal Reserve’s upcoming monetary policy decision, with expectations of a potentially cautious statement. In Europe, Bundesbank President Joachim Nagel emphasized a neutral position but noted the need for flexible monetary policy. The Eurozone’s industrial production fell by 2.4% in April, compared to an expected drop of 1.7%. The EUR/USD pair is still on an upward trend, finding support between 1.1495 and 1.1500. The next resistance level is in the 1.1615-1.1630 range. If the pair drops below 1.1460, the optimistic outlook may change. Monday’s recovery in the Euro appeared more as a correction than a shift in momentum, reversing some of last week’s significant moves driven mainly by geopolitical issues rather than economic factors. The real concern for markets was not the tensions between Israel and Iran but how those tensions remained contained. The Strait of Hormuz, a crucial oil shipping route, was not affected, easing fears that Iran could escalate pressures. This temporary relief allowed investors to take on more risk, which weakened the Dollar and lifted the Euro. The Dollar’s weakness was intensified by various uncertainties. With tariff policies still undecided and trade talks lacking concrete results, there is growing concern that the US may lack clear economic direction for a while. While there is known demand for the Dollar during stressful periods, traders seem to be reevaluating how long to maintain safe positions without new catalysts—especially when economic data and central bank comments suggest a different outlook.Fed Policy and Eurozone Strategy
Markets are preparing for the Federal Reserve’s next actions. Jerome Powell and his team are under increasing scrutiny as inflation risks no longer require strong responses and employment numbers are softening slightly. If the Federal Reserve signals a shift toward loosening policy or questions the need to keep restraint, it would reduce the yield advantage of US assets. This potential is gradually being factored into the markets, leading to temporary dips in the Dollar. In Europe, Nagel’s comments did not cause significant movement but reinforced the strategy of Eurozone policymakers: wait, evaluate, and leave room for adjustments. Flexibility is the focus—not expansion or tightening, just options. The recent drop in industrial output provides the European Central Bank with reasons to avoid surprises. However, the sharper than expected contraction highlights ongoing fragility in Eurozone growth. While this fragility doesn’t currently threaten the currency’s trajectory, it limits potential beyond immediate technical levels. The EUR/USD pair is still respecting its established channel. Recent lows around 1.1495 to 1.1500 have proven to be strong support. The markets seem hesitant to test these levels again without additional tension or changes in policy. Resistance remains in the 1.1615 to 1.1630 area, allowing for possible brief upward movements, especially if this week’s US data or Fed guidance disappoints. Beneath this, a crucial level near 1.1460 exists. If the pair decisively breaks below this and stays there, the optimism would shift and suggest fading interest across key Euro pairs. In the short term, price actions imply more responsiveness to Dollar sentiment than any European movements. From our viewpoint, the focus should shift to upcoming Fed statements and US economic data. Unless new surprises arise from the Middle East, upcoming days are likely to be more influenced by policy tone and economic indicators than by headline news. Traders sensitive to price changes should stay alert to how closely the pair remains at its current support before predicting any sustained upward movement. Create your live VT Markets account and start trading now.Rising oil prices lead to possible changes in interest rate expectations at central banks
Recently, higher oil prices led to a slight change in expectations around interest rates. However, as tensions ease, lower oil prices are expected.
By the end of the year, the forecast includes a 47 basis point cut from the Fed, with a 99% chance of no change at the next meeting. The ECB is likely to reduce rates by 19 basis points, also with a 95% probability of no change. The BoE might cut by 48 basis points, with a 90% chance of holding steady, while the BoC may reduce by 24 basis points, with a 78% probability of maintaining rates.
For the RBA, a cut of 74 basis points is expected, with a 73% chance of a rate cut at the next meeting. The RBNZ may cut by 27 basis points, facing an 82% probability of no change. The SNB is projected to lower rates by 45 basis points, with a 75% probability of a cut and a smaller chance of a 50 basis point cut.
In contrast, the BoJ anticipates a 17 basis point increase by year-end, with complete certainty of no change at the next meeting.
This article highlights current market expectations around central bank interest rate decisions for the remainder of the year, taking into account recent data and geopolitical changes. While global oil price shifts have influenced expectations, many in the market believe stability is on the horizon. Most major central banks are expected to either lower rates slightly or hold them steady, except for Tokyo’s policymakers, who are expected to move in the opposite direction.
Higher energy prices can quickly raise inflation expectations, making central banks cautious about rate cuts. However, the belief is that recent price spikes won’t last. If pressure eases, particularly with reduced geopolitical risks, markets predict a response in monetary policy—but not too quickly or dramatically. Current probabilities show most central banks are likely to keep rates steady at their next decisions, but anticipated cuts toward the end of the year suggest an easing of inflation pressures in the medium term.
Powell’s committee seems to be in a wait-and-see mode, with markets expecting them to hold rates steady at the next meeting. Still, they are expected to lower rates by about two standard quarter-points before the year ends. This reflects confidence that inflation in the U.S. will remain under control without causing further tightening.
Lagarde’s group is also expected to be cautious and cut rates less aggressively. This slower adjustment is due to stronger inflation data and a robust labor market in her region. Investors feel that this does not require rate hikes—just a bit of patience.
Bailey’s team might ease more than the European bloc, given weaker consumption and stagnant real wage growth putting the economy at risk of stagnation. Nevertheless, the high probability of no change in the next meeting indicates their reluctance to act unless inflation clearly moves back to target.
Macklem and his team are in a similar situation but seem to be responding more cautiously. Their decision to hold rates now, with room to ease later, shows the market thinks inflation is cooling but not decisively. Meanwhile, Lowe’s team is expected to cut more significantly, as domestic data shows weaker consumer activity, stable labor conditions, and lower prices for goods.
Orr’s group is holding steady for now but has less room to maneuver than their neighbors. A smaller projected cut and slightly firmer meeting expectations reflect ongoing caution about inflation readings that are around target but not compelling enough for quick action.
Jordan’s committee appears to have already priced in almost a full cut, with some room for further easing suggested. This may be driven by a stronger currency affecting export margins, prompting policymakers to take action.
Ueda’s team stands out as an exception. Their approach indicates a much slower and gentler path to reducing accommodation. The market’s confidence in holding rates steady at the next decision highlights the careful observation of domestic inflation, which is just starting to shift, though slightly.
From our perspective, the differences in rate expectations across various regions signal clear opportunities for directional and relative value trades. The significant gap between anticipated actions and the certainty of near-term holds provides useful indicators for short-dated volatility strategies. For those engaged in curve spread positions, differing speeds and magnitudes of anticipated easing present entry and exit possibilities with real data surprises.
The certainty around upcoming meetings, compared to the relatively small anticipated moves by year-end, indicates asymmetric risks: significant price adjustments may only happen with major surprises. So, it’s essential to closely monitor central bank speeches and inflation reports, especially in areas where implied moves are shallow but asymmetric.
We think it’s wise to selectively adjust exposure now, particularly where markets have overestimated central bank caution or undervalued disinflation trends. Short-end bets, based on differences in forward pricing rather than pure direction, could provide the best entry points in the coming weeks. Low summer liquidity, combined with significant upcoming data, is likely to keep volatility high between meetings.
Gold (XAU/USD) declines towards $3,400 support after rejection at $3,440
Gold prices have dropped as demand for safe-haven assets has decreased, partly due to easing concerns about tensions in the Middle East. The XAU/USD is still on an upward path but is pulling back after reaching resistance at $3,440. Support is now focused around $3,400.
Worries about the Iran-Israel conflict have eased, shifting demand away from Gold towards riskier investments. Although the conflict persists, its limited effect has led to a rally in market risk, reducing Gold’s value.
