Interest rate landscape
The Federal Reserve held its federal funds rate steady at 3.5% to 3.75% for the fifth consecutive meeting this year. Internal divisions within the Fed have become more pronounced, with nine voting members favoring no change while three dissented in favor of a 25 basis point hike. During the press conference, Fed Chair Walsh adopted a moderately hawkish tone, reiterating the 2% inflation target and rejecting any notion of raising the tolerance for inflation. He emphasized that the decline in inflation is a long-term process and that a single favorable data point is insufficient to confirm a downward trend, leaving the door open for further rate hikes. The Fed is also advancing a reform of its communication framework, de-emphasizing forward guidance, and making future rate decisions highly dependent on incoming economic data, with the September meeting emerging as a key observation point.
Inflation data
The Bureau of Labor Statistics reported June CPI data, showing a monthly decline of 0.4%—far below the market expectation of a -0.1% drop and marking the first monthly contraction since early 2020. On an annual basis, the June CPI fell sharply to 3.5% from 4.2% in May. The core PCE price index rose 0.1% month-over-month and 3.3% year-over-year, both lower than May's figures. The overall PCE price index fell 0.1% month-over-month, its first negative reading since the onset of the pandemic in 2020.
Currency movements
In July 2026, the US Dollar Index fell by 1.36%. Early in the month, market sentiment was driven by expectations of the Fed's hawkish monetary policy stance, which significantly boosted the dollar. However, as inflation data showed no signs of a sharp uptick and the Fed maintained its pause, the dollar began to retreat. If geopolitical tensions continue, rising oil prices could once again fuel expectations for tighter monetary policy.
Market risk pricing
The US-Iran situation shows no clear signs of cooling. According to the Wall Street Journal, US officials have indicated that President Trump has ordered a new round of attacks on Iran aimed at forcing Tehran to surrender, with operations potentially beginning as early as this weekend and lasting several days. Officials said Trump is considering a two-week campaign of high-intensity air strikes to weaken Iran's missile capabilities.
Strategy
Gold: Neutral. Macroeconomic and geopolitical factors currently represent the primary headwinds for gold. The chain of logic—where geopolitical tensions drive oil prices and subsequently influence market expectations for monetary policy—is unlikely to be broken in the near term. Therefore, a neutral view on gold is maintained for the short term. However, over the long term, gold remains an irreplaceable store of value, and with the outlook for real interest rates still likely to trend downward, buying on dips is still recommended. There is still a risk of further short-term corrections, but opportunities to buy the Au2610 contract at the dip between 870 yuan/gram and 890 yuan/gram can be considered.
Silver: Neutral. In the short term, risk assets face downside pressure. Due to its inherently higher volatility, silver's logic is broadly similar to gold's. As such, a wait-and-see approach is advisable for now. However, companies with hedging needs could still consider buying the Ag2610 contract for hedging purposes at the dip between 13,800 yuan/kg and 14,100 yuan/kg.
Arbitrage: Hold off.
Options: Hold off.
Risk: Long positions exiting the market; sustained rate hikes triggering large-scale liquidity risks (monitor the SOFR-OIS spread and ON RRP account balances).
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