- Geopolitics, Kevin Warsh and inflation data are likely to cause sharp fluctuations in the .
- is under pressure from real Treasury yields.
The US dollar began the week with an upward trend amid escalating tensions in the Middle East. Donald Trump declared that the ceasefire is over, while Tehran denied claims from the White House that it was seeking negotiation opportunities. The confrontation is evident and, with it, the direct correlation between oil prices and the dollar is resurfacing.
Markets are factoring geopolitics into their expectations for potential Fed rate adjustments. Consequently, the probability of two rate hikes in 2026 has increased from 36% to 50% over the past week.
However, investors' attention is not only focused on geopolitics, but also on the release of US inflation figures for June and Kevin Warsh's testimony before the US Congress. Warsh has twice caused turbulence in financial markets. First, at his first FOMC meeting, he stated that the Fed intended to do everything in its power to bring consumer prices back to target, causing the dollar to rise. Then, in Sintra, Portugal, the new Federal Reserve chairman's comments about progress in fighting inflation instead weakened the dollar.
Consumer prices are expected to fall 0.1% month-on-month in June, marking the first drop since the pandemic and suggesting the indicator peaked in May. However, FOMC hawks can take advantage of core inflation accelerating from 0.2% to 0.3% month on month. The market reaction will depend on the actual figures.
The escalation of the conflict in the Middle East has caused gold to fall towards $4,000 per ounce. The precious metal is sensitive to movements in real Treasury bond yields, which have reached their highest level in more than a year. This, combined with the strengthening US dollar and the increasing likelihood of aggressive monetary tightening by the Federal Reserve, is creating headwinds for gold.
He FxPro Analyst team
