GMI foreign exchange observation: Wash's first interest rate meeting is approaching, and market differences are obvious

The new Federal Reserve chairperson Kevin Walsh is about to announce his first interest rate decision in office, and market participants have generally expected that the current interest rate level will continue to remain unchanged at this meeting. The GMI foreign exchange analysis team has noticed that the policy signals surrounding this result have triggered multi-dimensional interpretation and discussion in the industry.

The core focus of this interest rate meeting is not the interest rate decision itself, but Walsh's wording tendency in the policy statement, his judgment on the outlook for the economy and inflation, and whether there will be new changes in the Fed's policy independence. Many industry insiders have given different judgments. If the policy tone is more hawkish, the short-term precious metals market may be under pressure, but the structural logic that supports the upward price of gold in the long run still exists.

Market Neutrals: Policy anchors economic data, external intervention concerns amplified

Kevin Grady, president of Phoenix Futures and Options, said that Warsh's policy statement is not expected to be significantly different from the previous Federal Reserve chairperson, and monetary policy will still be based on economic data for dynamic adjustment.

Grady pointed out that the market had generally bet on interest rate cuts at the beginning of the year, and the recent rebound in inflation and energy prices has raised expectations of interest rate hikes. It is not objective to simply follow market sentiment. "Walsh will read the economic data comprehensively and make policies based on actual conditions, rather than being influenced by short-term expectations."

In his opinion, the outside world's concerns about the possible interference of monetary policy by external factors are overrated. Warsh has long been known for his pragmatic style, and it is likely that he will maintain a relatively neutral policy judgment and will not change the direction of decision-making due to external public opinion pressure. In the past few years, many persistent bearish views on the US economy have repeatedly failed, and the credibility of relevant forecasts has significantly declined. Anxiety about the limited policy space of central banks also lacks sufficient data support.

Trading institutions' perspective: Hawkish signals bearish gold prices short-term performance, long-term support logic is stable

John Murillo, chief commercial officer of B2BROKER, said that the core variable that really affects the direction of the market at this meeting is the forward policy guidance. Judging from the market expectations tracked by GMI FX, investors will focus on whether Warsh confirms that the policy tone is maintained until 2027.

Murillo said that if the dot plot or policy wording sends hawkish signals, U.S. bond yields are expected to rise first, pushing up the dollar exchange rate, which in turn will form a short-term pressure on gold prices.

But he also stressed that the short-term correction will not change the long-term operating trend of gold. At present, many central banks continue to purchase gold to optimize the structure of foreign exchange reserves, global macro uncertainty has increased the market's safe-haven demand, and the US fiscal deficit has been high for a long time. These structural support factors will not be changed by a single interest rate meeting. A short-term drop in gold prices may instead attract long-term funds to bargain. From the perspective of the market transmission chain, fluctuations often appear in the US bond market first, and then spread to the US dollar, eventually affecting gold assets.

Pessimists: Policy credibility is damaged, decision-making space is limited

GMI FX notes that the debate on the Fed's policy credibility is still heating up. Darling Newsom, senior market analyst at Barchart, takes the opposite view, arguing that the Fed's current market credibility has been significantly weakened, and the autonomy of policy direction is also limited by various factors.

Newsom said that the market is now pushing the expected time of the next interest rate hike further, and the possibility of policy tightening until then is limited. In his view, Warsh's autonomous decision-making space is not abundant, and the convergence of positions within the committee is more obvious. Even if there are different opinions, it is difficult to have a substantive impact on the final decision.

He expects interest rates to remain unchanged at this meeting, with a short-term rate cut unlikely. Even if Mr. Warsh repeatedly emphasizes the importance of inflation and employment targets in his public communications, it will take time to rebuild the trust that partly explains the continued increase in gold holdings by global central banks.

commoditybrokerThe easing of external uncertainties is expected to ease inflationary pressures, and the policy orientation tends to be looser

Daniel Pavelonis, a senior commodities broker at Stonex Group, pointed out that Walsh is more inclined to guide the market through expected communication at this stage, and may not directly implement interest rate cuts in the short term, but use diversified policy tools to indirectly lower market interest rates.

Pavelonis further explained that if there is a substantial easing of external tensions, the pressure on crude oil supply will be significantly reduced, and the decline in energy prices is expected to drive down inflation significantly. Some members who were originally inclined to tighten policy may also adjust their stance as a result.

He added that oil prices fluctuate at a fast pace, and once the external environment improves, the role of energy prices in driving inflation will quickly weaken. In addition, the policy side is expected to maintain a friendly attitude towards capital markets in the coming period, and equity assets may continue to receive favorable environmental support.

Overall, the market has fully expected that interest rates will remain unchanged at this meeting, and the core differences among the parties are still focused on policy independence, the path of medium- and long-term interest rates, and the performance direction of gold assets. The short-term hawkish policy guidance may trigger a phased pullback in gold prices, but the long-term supporting factors such as the central bank's gold purchase trend, external uncertainty, and fiscal deficit pressure have not subsided. If inflationary pressure further eases, it will also reserve space for flexible adjustment of subsequent policies. GMI foreign exchange analysis team believes that investors should pay more attention to the changes in economic fundamentals behind policy signals and rationally view short-term market fluctuations.