Daily Report – 19 July 2022

Fundamental Report: The Gold is trading stable at the mid-session , while heading for its fifth consecutive weekly loss. After last week’s CPI index report for June was released market participants began to factor in the possibility that the next rate hike during this month’s FOMC meeting ending in July 27could be as high as a full hundred basis points. Recent weakness in gold prices stemmed from dollar strength and recent dollar strength is a direct result of higher yields in US debt instruments making that asset group more attractive. Higher yields are based upon recent action by the Federal Reserve that has raised rates at the last three FOMC meetings in incrementally larger amounts. The Fed raised rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June. According to the CME’s FedWatch tool, there is a 69.1% probability that the Fed will raise rates by 75 basis points and a 30.9% probability that they will raise rates by hundred basis points.Markets are, hurt by fears the U.S. Federal Reserve could move toward a more aggressive interest rate hike at its July 26-27 monetary policy meeting to fight red-hot inflation. Breaching 1700 mark on intraday basis signal downside possible. The traders believe the Fed will front-load its rate hikes but not necessarily increase overall rate hike expectations. According to the FedWatch indicator, the Fed is seen ramping up its battle with sky-high inflation with a supersized 100 basis points rate hike at its upcoming policy meeting on July 26-27. With some experts still pressing for a 75-basis point rate hike at the Fed meeting, and others now pushing for a 100-basis point rate hike, there is enough room to produce a choppy, two-sided trade ahead of the Fed decision. To look at it another way, based on the inflation data, some traders now see a 75-basis point rate hike as “dovish” when compared to the possibility of a 100-basis point rate hike.

There is no denying that the previous quarter was monumental for monetary policy as central bankers across the world ramped up their fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years – driven in part by the war in Ukraine, worsening supply chain disruptions and effects of COVID related shutdowns in China. Once again in the 3rd quarter of 2022, global monetary policy continues to be a dominant force driving market sentiment almost on a daily basis – And that narrative shows no signs of slowing down anytime soon. A string of big rate rises by the Federal Reserve has now put pressure on central banks around the world to follow suit to counter soaring inflation and the strong dollar. In the three months to June, 62 policy rate increases of at least 50 basis points were made by 55 central banks. Another 17 big increases of 50 basis points or more have been made in July so far, marking the biggest number of large rate moves at any time since the turn of the millennium and eclipsing the most recent global monetary tightening cycle, which was in the run-up to the global financial crisis. Looking ahead, rate hikes will remain the primary focus for traders in July with a long-list of central bank monetary policy meetings back on the agenda again and more surprise hikes almost inevitably likely. This week see a plethora of monetary policy meetings with The European Central Bank, Bank of Japan and The Central Bank of Russia taking centre stage.