Following tariffs, the primary concern for the financial industry is the autonomy of the Federal Reserve. This is due to ongoing pressure from the US administration to reduce interest rates. If this were to occur, it could significantly impact the repricing of the US Dollar and the bond market, as well as place considerable strain on the stock market.
The majority of the voting members at the Fed are primarily focused on tariffs that could lead to higher inflation.
Central banks globally cannot permit external interference in their monetary policies. The Fed’s credibility is on the line.
Despite rumors, President Donald Trump has denied any plans to intervene. He stated to reporters, “we are not planning on doing it,” but also noted that he does not rule out any possibilities.
The next challenge for the financial sector involves ongoing tariff negotiations, particularly with the European Union, despite their proposal for reduced tariffs on US goods.
The US is aiming for a tariff of 15% to 20% with Europe and is open to reciprocation. The deadline for these negotiations is August 1.
Tariffs present an additional burden that will ultimately be shouldered by consumers, which is inflationary in nature. However, the effects of these tariffs will have a delayed impact on the economy, becoming more apparent in the coming months.
The previous week has been quite volatile. The threat of tariffs and inflation continues to affect the market. The US dollar has benefited from its status as a safe haven, outperforming other currencies.
The Consumer Price Index (CPI) released last week indicates a rise in inflation driven by tariffs. This has led many traders to reconsider their support for a rate cut in July.
In the Eurozone, the European Central Bank (ECB) is set to announce its decision on interest rates on Thursday. Last month, they reduced rates by 25 basis points, bringing the deposit rate down to 2%.
The European economy appears stable with these developments, and a pause in rate changes is possible. It is anticipated that the ECB will implement one more rate cut this year.
On the other hand, the Pound Sterling, which saw a strong demand since June, has weakened as sellers have emerged due to declining economic conditions in the UK and a stronger USD.
Traders are increasingly focused on the British economy and expect a rate cut sooner than anticipated. Recent labour market data from the UK revealed eight consecutive months of job losses, while GDP shrank for the second straight month. This has prompted a downgrade in the outlook for the Pound Sterling. It needs to break above the 1.3580–00 range to regain its previous strength. Otherwise, a fall below 1.3320 could lead to further losses.
Recently, it has been observed that the future of Federal Reserve Chairman Powell is influencing gold prices positively.
Meanwhile, Central Banks and investors appear to be cautious regarding their next steps.
Geopolitical tensions have also lessened, at least for now. Gold has been facing challenges in gaining momentum and still needs to break through the $ 3420 level, which seems difficult without significant buying support.
The rapid fluctuations we often witness primarily stem from traders reacting to news and speculation, particularly regarding tariffs, which tend to settle down once there is some consensus or a postponement of deadlines.
In this context, I believe that, lacking any robust fundamentals, gold will likely trade within a wider range of $ 3200 to $ 3450 for a while.
WEEKLY OUTLOOK — July 21-25
GOLD @ $ 3350.50— On the upside, unless gold surpasses the range of $ 3380-85 and reaches $ 3415-20, there is a potential for a drop. A decline below $ 3315-30 might lead it down to $ 3292-96 or $ 3262.
EURO @ 1.1626— Euro is well-supported in the range of 1.1510-20. It may try to break through 1.1725 toward 1.1780. However, if it breaks below the support level, it could face a decline to test 1.1450 levels.
GBP @ 1.3409— Pound Sterling needs to break through the 1.3580-00 level, which may prove challenging for additional gains. On the lower end, it has support near 1.3280-00, a level that won’t be easy to give up.
JPY @ 148.83— USD has strong support near 147.50, suggesting that any declines may be limited. At the same time, it must surpass 149.95 to reach 150.40.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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