On July 14th, despite the ongoing escalation of the US-Iran conflict, Goldman Sachs believes the inflationary impact of the war on the US is diminishing and is insufficient to destabilize anchored inflation expectations, with the Federal Reserve expected to keep interest rates unchanged this year. According to the Goldman Sachs trading desk, economists David Mericle and Pierfrancesco Mei noted in a research report published on July 12th that the commodity price shock has significantly receded, and the pass-through effect on inflation is expected to weaken notably in the third and fourth quarters.
Core PCE inflation is projected to record a monthly increase of 24 basis points in June, subsequently stabilizing within a range of 20 to 23 basis points. This trajectory is sufficient for the Fed to remain on hold for the remainder of its 2026 meetings, though the margin for error is extremely narrow. A key premise for this outlook is that the conflict does not escalate significantly further. Should oil prices return to $100 per barrel, it would add an extra 3 to 4 basis points to monthly core inflation. More importantly, a renewed supply shock would heighten market concerns about inflation expectations becoming unanchored, potentially influencing monetary policy debates far beyond the numerical impact itself.
Additionally, a copy of OPEC's monthly report released on Monday showed the organization has revised down its 2026 global oil demand growth forecast to 780,000 barrels per day, marking the third consecutive downward adjustment. Compared to other forecasting bodies like the International Energy Agency (IEA), this oil-producing group still maintains that consumption has been less affected since the outbreak of the Iran war. OPEC indicated that the global economy may perform better for the remainder of this year and raised its oil demand growth forecast for 2027. The war effectively closed one of the world's most crucial oil chokepoints, the Strait of Hormuz, for several months, restricting millions of barrels of production from the Middle East. As Iran and the US reached an interim peace agreement, production is beginning to recover, although renewed military strikes have once again sparked concerns about shipments.
Key data to watch today includes the US June NFIB Small Business Optimism Index, the US June CPI Year-over-Year rate unadjusted, and the US June CPI reading unadjusted.
Gold/US Dollar
Gold experienced a significant decline yesterday, narrowly holding above the 4000 level and hitting a new 8-day low, with the current spot price trading around 4030. The primary factor pressuring gold lower was the resurgence of Middle East tensions, which reignited inflation fears. Furthermore, heightened expectations for a Federal Reserve rate hike in July and rising US Treasury yields also contributed significantly to the downward pressure on gold. Today's focus is on resistance near the 4080 level, with support around 3980.
Australian Dollar/US Dollar
The Australian dollar moved lower in a choppy session yesterday, reaching a new 3-day low, with the current spot price trading around 0.6930. Aside from profit-taking exerting some downward pressure, the resurgence of Middle East tensions dampening market risk sentiment was a significant factor weighing on the Aussie. Additionally, increased expectations for Federal Reserve rate hikes also applied some pressure. Today's focus is on resistance near the 0.7000 level, with support around 0.6850.
US Dollar/Japanese Yen
The US dollar/Japanese yen pair edged higher in a volatile session yesterday, closing slightly up, with the current spot price trading around 162.30. The primary driver supporting the pair's climb was a stronger US dollar index, bolstered by safe-haven demand and rising Fed rate hike expectations. Moreover, concerns that Middle East tensions could hamper Japan's economic growth prospects provided additional support. However, renewed expectations for a Bank of Japan rate hike and worries about potential further Japanese intervention in the currency market limited the pair's upside. Today's focus is on resistance near the 163.00 level, with support around 161.50.
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