Eyes on the Fed, the ECB, and the BOJ
Next week, markets will be digesting the Federal Reserve, the European Central Bank, and the Bank of Japan's monetary policy statements.
There was a lot of optimism this week that the Fed was close to being done with its tightening cycle despite Powell's promises of at least two more rate hikes this year.
"The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at next week's FOMC meeting, but we increasingly believe that will prove to be the peak," said Capital Economics chief North America economist Paul Ashworth.
Behind this optimism was June's inflation data, which showed inflation sharply cooling in the U.S. The consumer price index rose 3% last month — the slowest pace in over two years. And the core CPI measure, which excludes volatile food and energy prices, was up 4.8%, marking the slowest advance since 2021.
"Despite the 'higher for longer' rhetoric from officials, a more marked decline in core inflation and easing in labor market conditions in the second half of this year will eventually persuade the Fed to pivot and cut rates aggressively next year," Ashworth noted Friday.
For next week's FOMC statement, analysts will pay close attention to any changes to the inflation narrative and how strongly the Fed maintains its tightening bias.
"In his press conference, Chair Jerome Powell may even go as far as to stress that additional rate hikes this year are still necessary," Ashworth said. "Markets are unconvinced, however, and broadly agree with our view that the Fed is almost done tightening."
Before the Fed can signal that it's done raising rates, there will be a period of uncertainty and data dependence, said TD Securities senior commodity strategist Ryan McKay. And for gold, it could mean a pause before the next move higher.
"Speculators have been unwilling to fully buy into the bullish gold narrative," McKay said Friday. "Indeed, discretionary traders and investors have thus far remained on the sidelines for now. But, this also offers the potential for additional upside should Fed expectations turn more dovish, and this cohort begins deploying their dry-powder."
The ECB is also expected to raise rates by 25 basis points on Thursday, with analysts paying close attention to ECB President Christine Lagarde's comments. Meanwhile, the BOJ is projected to keep rates steady and its yield curve control unchanged.
"It seems that while the BOJ stands pat, the other major central banks are tightening, and that should continue to drive that interest rate differential trade," Moya pointed out.
Data next week
Tuesday: U.S. CB consumer confidence
Wednesday: Fed decision, U.S. new home sales,
Thursday: ECB decision, U.S. jobless claims, U.S. durable goods orders, U.S. GDP Q2, U.S. pending home sales
Friday: BOJ decision, U.S. PCE Price Index
By
Anna Golubova
For Kitco News
Tim Moseley