Global Markets Brace for Pivotal Central Bank Meetings

This week, the global financial landscape is poised for significant shifts as three major central banks convene to discuss potential interest rate changes. The Federal Reserve's Federal Open Market Committee (FOMC) meeting takes center stage, alongside gatherings of the Bank of Japan (BOJ) and the Bank of England (BOE).

The FOMC's two-day meeting, commencing tomorrow, will culminate on Wednesday with the release of an updated policy statement at 2 PM ET, followed by Chairman Powell's press conference at 2:30 PM ET. While the Federal Reserve is expected to maintain its current benchmark interest rate between 5.25% and 5.5% - a 23-year high held since July 2023 - market participants are keenly awaiting insights into potential rate cuts beginning in September.

Ryan Sweet, chief U.S. economist at Oxford Economics, suggests that "The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table." Goldman Sachs analysts anticipate subtle changes in the policy statement's wording, potentially replacing "greater confidence" with phrases like "further progress" or "somewhat greater progress" to acknowledge inflation's trajectory towards the Fed's 2% target.

The CME's FedWatch tool indicates a 100% probability of the Federal Reserve implementing its first rate cut in September, with an 89.6% chance of a 0.25% reduction. Interest rate futures traders forecast at least two rate cuts this year, with the possibility of three consecutive 0.25% cuts in September, November, and December.

Concurrently, the Bank of Japan will meet on Wednesday to discuss potential rate changes. Bank of America's Japan and Asia economist, Takayasu Kudo, predicts a small hike, raising the policy rate from zero to between 0.1% and 0.25%. The Bank of England's meeting is scheduled for Thursday, completing the trifecta of central bank deliberations.

The December contract (GC Z24) has now become the most actively traded month for gold futures. Today December gold opened at $2,438.80, reached a peak of $2,450 before settling at $2,429.40. Currently gold futures have edged slightly lower, trading at $2,427.90.

Wishing you as always good trading,