Last week, the Federal Reserve kept interest rates unchanged at 3.50%-3.75% in its July meeting, but the vote was 9-3; three members supported a rate hike, marking the first large-scale dissent this year. Chairman Warsh downplayed expectations of a rate cut, leaving open the possibility of further rate hikes; the market priced in a 60% probability of a September rate hike. Long-term US Treasury yields surged, with the 30-year Treasury reaching 5.27% (a new high since 2007).

Middle East geopolitical sentiment fluctuated; the US-Iran conflict did not escalate further, and the safe-haven premium for crude oil temporarily declined, suppressing inflation expectations; however, the conflict could escalate again at any time.

Asia-Pacific markets experienced increased volatility; Japanese and South Korean stocks initially declined before rebounding, with a significant rebound driven by semiconductors on Friday; A-shares and Hong Kong stocks fluctuated and bottomed out, with a strong wait-and-see attitude in the market.

Oil prices closed higher last week amidst sharp fluctuations, seemingly due to frequent geopolitical risks, but the market did not give a significant risk premium. The core reason lies in traders' expectations that once the conflicts in key waterways such as the Red Sea and the Strait of Hormuz are resolved to some extent, a large amount of previously pent-up supply will quickly flow back into the market. This large supply awaiting market entry will suppress any significant rise in oil prices. This "expectation-driven suppression" reflects the current oil market's potential oversupply; even actual events such as tanker attacks and port attacks can only trigger brief pulses and cannot reverse traders' assessment of a medium-term supply-demand imbalance.

Last Week's Market Performance Review U.S. stocks rose on Friday, with gains in major technology stocks boosting the market in volatile trading. The S&P 500 rose 0.7%, the Nasdaq 100 rose 0.6%, and the Dow Jones Industrial Average rose 277 points. The Dow and S&P 500 each rose about 1% this week, while the Nasdaq rose about 1.6%. However, in July, the S&P 500 fell 0.1%, and the Nasdaq fell 3.2%. The Dow Jones bucked the trend, rising 0.3% to mark its fourth consecutive monthly gain.

Last week, gold fell to [price missing] per ounce on Friday. Silver fell to around $4,040 an ounce on Friday, as the dollar rebounded from a more than one-month low. Despite this, the metal rose about 0.5% in July, its first monthly gain since February, supported by weak U.S. inflation data and the Federal Reserve's decision to keep interest rates unchanged. Gains were limited as markets anticipated monetary policy tightening, with the probability of a Fed rate hike in September estimated at around 65%.

Silver prices fell more than 2% on Friday to around $57.620 an ounce, ending July down more than 1%, as the dollar rebounded from a more than one-month low and expectations of Fed policy tightening weighed on the market. The expectation exceeded the support from weak US inflation data and unchanged interest rates. Currently, the market estimates a 65% probability of a Fed rate hike in September and anticipates another rate hike by June 2027.

Last week, the US dollar index settled at 99.75, recording a weekly decline of 1.65%. This was not a mild correction, but rather the most intense weekly sell-off since the end of January. There were only two main themes last week: the Federal Reserve's interest rate decision deprived dollar bulls of their last pillar of support, while the Japanese authorities' intervention in the foreign exchange market after several months dealt a heavy blow to the dollar against the yen. With these two themes intertwined, non-US currencies collectively rallied, with the euro and pound both rising by more than 1.4% for the week, while the dollar plummeted 3.6% against the yen, becoming the most volatile currency among the G10 currencies.

The euro closed higher against the US dollar last week, at 1.1535. While intraday volatility appeared mild, the weekly gain reached 1.46%, and the monthly return was also positive at 0.16%. The daily chart shows signs of marginal improvement: the price has rebounded from the previous low of 1.1324, and the MACD is currently showing a weak red bar near the zero line, with the DIFF and DEA lines approaching a golden cross, indicating a nascent bullish trend. The USD/JPY pair closed the week at 157.35, a significant weekly drop of 3.6%, an extremely rare weekly fluctuation recently. The exchange rate has plummeted from a high of 163.98 and is currently approaching 157. The MACD formed a death cross at a high level and is accelerating downwards, with the green histogram bars continuing to lengthen, indicating a bearish signal strength of four stars. This week's candlestick pattern shows consecutive large bearish candles, with bulls offering virtually no resistance.

The GBP/USD pair rose 0.2% this week, closing near 1.3480, a weekly gain of 1.45%. On the daily chart, the price rebounded from the lower Bollinger Band at 1.3204 and is currently trading around 1.3485, where bulls and bears are temporarily at equilibrium. The MACD histogram is weak, with the DIFF and DEA lines almost converging, indicating that a trend has not yet formed. The signal strength is only two stars, a typical neutral zone. The Australian dollar closed at 0.7025 against the US dollar last week. After three consecutive days of decline, the Australian dollar traded in a narrow range. Australian inflation unexpectedly fell to 3.8% in June (previous 4.0%), causing market expectations for an RBA rate hike this year to plummet from 90% to 50%, and the 10-year government bond yield to fall to 4.9%. However, the cutoff mean remained stable at 3.6%, indicating underlying inflationary pressures have not subsided.

WTI crude oil prices rebounded before the end of last week, reaching around $85 per barrel, ending a more than 20% gain in July, the strongest monthly increase since March, mainly driven by escalating geopolitical tensions and concerns about global oil supply. Crude oil is currently facing not a single bullish factor, but a repricing of supply risks, policy constraints, and demand elasticity.

Bitcoin showed greater resilience than many investors expected at the end of July. Although it briefly fell below $63,000 on Friday, it dropped by approximately [missing information - likely a percentage] during the day. While the market capitalization of the cryptocurrency fell 3%, it is still on track for a monthly gain of approximately 7.5% for the entire month. Considering the market's digestion of multiple negative factors in recent weeks, including expectations of a potential Fed rate hike this year, rising US Treasury yields, a significant pullback in AI trading themes, and the recent high-profile security incident involving the Coldcard hardware wallet, this performance is quite robust.

At the end of July, the Fed kept interest rates unchanged for the fifth consecutive time, despite inflation remaining significantly above target and energy prices rising again. However, the vote shifted from unanimous approval to a 9-3 split, widening policy divergence. The 30-year US Treasury yield rose to 5.237%, a 19-year high, while the 10-year yield also rose to approximately 4.70%. This indicates that market focus has shifted from whether to adjust interest rates next to whether the Fed can control medium- to long-term inflation risks.

Market Outlook for This Week This week (August 3-7), the ongoing conflict between Iran and the United States will continue to exacerbate uncertainty in global energy prices, impacting the inflation outlook. This is accompanied by volatility in artificial intelligence trade, with results to be updated by SpaceX and AMD.

This week is packed with economic data, primarily the US jobs report and other labor data from the JOLTS and ADP reports. The ISM Purchasing Managers' Index, factory orders, and trade balance will also provide updates on industrial and tariff information.

The core focus this week: The US July non-farm payroll data (Friday evening) is the biggest pricing driver of the week.

In Europe, industrial production in the Eurozone's largest country will reveal the impact of higher electricity costs, while Germany will release its trade balance.

China's PMI results and trade balance are highly anticipated. Meanwhile, Japan will release wage data, and Australia will conduct an industry survey. Elsewhere, OPEC+ members will meet to discuss annual oil production quotas.

Risk Warning: Data and policy variables require close monitoring.

1. 1. **Middle East Geopolitical Risk:** Escalating shipping risks in the Red Sea and the Strait of Hormuz, coupled with a sudden surge in oil prices, have fueled global inflation expectations, forcing central banks to maintain high interest rates and suppressing global stock market valuations.

2. **Poor Expectations for US Non-Farm Payroll Data:** A rebound in wage growth and stronger-than-expected employment data could lead to a market repricing. The Fed's decision not to cut rates in September, or even to resume rate hikes, has caused US Treasury yields to soar, negatively impacting gold, growth stocks, and non-US currencies, while the US dollar strengthens rapidly.

3. **Abnormal US Treasury Yield Movements:** Long-term US Treasury yields have surged again, suppressing all overvalued equity assets and precious metals.

4. **Currency Intervention Risk:** The rapid depreciation of the yen has triggered verbal/actual intervention by Japan, causing significant volatility in the USD/JPY exchange rate and triggering a chain reaction of fluctuations in cross-currency pairs.

5. **Rapid Crude Oil Price Increases Raise Concerns about Stagflation:** Market sentiment has shifted from growth to defense.

Conclusion:

This week, the market lacked a clear one-sided trend, primarily driven by a wait-and-see approach to data. Ahead of the non-farm payrolls report, major assets remained range-bound; the true direction will be decided on Friday evening.

In early August, the ongoing conflict between Iran and the United States will continue to exacerbate uncertainty in global energy prices, thereby impacting the inflation outlook.

This week is packed with economic data, primarily the US jobs report and other labor data from the JOLTS and ADP reports. In Europe, industrial production in the Eurozone's largest country will reveal the impact of higher electricity costs, while Germany will release its trade balance.

China's PMI results and trade balance are highly anticipated. Meanwhile, Japan will release wage data, and Australia will conduct industry surveys.

Wash's press conference analysis: A new era of market-driven pricing begins; September policy remains open to all possibilities.

The Federal Reserve kept interest rates unchanged last week, with three dissenting votes for a rate hike. Warsh stated that healthy internal debate was evident. Currently, the Fed maintains its 2% inflation target and continues to push forward with the reform to remove forward guidance, welcoming market-driven pricing based on data. AI is driving capital spending and boosting the economy, but various external shocks are interfering with inflation assessments. The Fed emphasizes that its decisions are not constrained by market expectations; the current September rate hike is merely a market expectation, and the policy direction remains uncertain.

Internal debate emerges: A healthy debate has arrived as expected, with most members choosing to postpone the rate hike.

Three members voted dissenting, advocating for an immediate 25 basis point rate hike. Warsh stated that the "healthy internal debate" he had anticipated has occurred. Although hawkish voices have significantly increased, the majority of committee members support maintaining the current interest rate.

Warsh made a key statement: This is a period of prudent assessment, not simply waiting and watching. Faced with inflation exceeding the target level for many years, the Fed cannot expect short-term data to quickly solve the problem; combating inflation is a long-term task, and policy resolve will not waver. Shaking.

Core Reform Implemented: Gradually Phased Out Forward Guidance, Reshaping Market Pricing Logic

The core reform during Warsh's term was the elimination of forward guidance. He acknowledged that the market needed a transition period to adapt to the rule changes, but firmly believed that the reform would facilitate the formulation of more scientific monetary policy.

Warsh pointed out that the nominal and real interest rates along the entire US Treasury yield curve are now rising simultaneously, and the market is beginning to trade autonomously based on real economic data, no longer simply waiting for officials' statements. In his view, this shift is a long-term positive. He also jokingly remarked to market participants: while they verbally demand policy response logic, they are essentially still craving clear policy path predictions.

Two Main Economic Drivers: AI Capital Expenditure Rebounds, Various External Shocks Disrupt Inflation Assessments

Two major changes have dominated the recent economic landscape: First, high-tech capital expenditure has exploded, with AI-related equipment and software growing at nearly 20% annually over the past four quarters, boosting the manufacturing sector; second, multiple shocks, including tariffs, the US-Iran conflict, and the lingering effects of COVID-19, continue to disrupt prices.

The Federal Reserve will not simply ignore external shocks but will strive to uncover underlying inflation trends amidst the disturbances. The continuous external risks significantly increase the difficulty of monetary policy formulation. Warsh reiterated his hawkish stance, stating that the 2% inflation target will not be relaxed and that achieving price stability is the core mission of the committee.

Policy Outlook: Unbound by Market Expectations, the Jackson Hole Speech Remains Uncertain

Currently, the market is heavily pricing in a September rate hike, but Warsh clearly signaled independence: the Fed will not be constrained by market trading prices and will not blindly follow market expectations.

The content of the August Jackson Hole speech has not yet been finalized, and the theme is still undetermined. The Fed will continue to refer to the research results of internal task forces before the meeting. In the short term, the Fed has committed to continuing to hold press conferences after all policy meetings this year, while in the long term, it retains the space to adjust the press conference mechanism.

Conclusion This press conference conveyed a clear tone: hawkish forces within the Federal Reserve are growing stronger, but the current stance is to maintain a wait-and-see approach. Warsh continues to push for forward guidance reforms to guide market pricing. AI investment supports economic resilience; however, multiple geopolitical and policy shocks continue to create inflation uncertainty. Although the market has widely priced in a September rate hike, the Fed retains all policy options and will not compromise with the market prematurely.

Subsequent inflation and energy price data, as well as the Jackson Hole symposium speech, will be key clues for predicting the interest rate path in the fourth quarter.

Oil prices fell sharply and returned to range-bound trading; supply-side concerns continue to support prices.

Following signs of easing tensions in the Middle East, the market quickly withdrew from previously accumulated supply risk premiums, with WTI crude oil continuing its correction and falling to a recent low of $80. This sharp market pullback was primarily due to investors rapidly digesting expectations of a de-escalation in the Middle East and prematurely exiting the risk premiums previously incurred due to supply disruptions. However, actual oil transportation restrictions have not yet been lifted, and shipping activity in the Strait of Hormuz remains low, indicating continued supply pressure in the physical market. Investors are currently focused on the Federal Reserve's interest rate decisions, US economic data, and further geopolitical developments. In the short term, oil prices may continue to fluctuate between risk expectations and actual supply changes.

This recent drop in oil prices mainly reflects a change in market sentiment rather than an actual recovery in supply. The US suspended military operations after 13 consecutive nights, and there has been no further escalation for several days. The US President stated that there is still a chance for negotiations, and if no progress is made, stronger measures may be taken. The market therefore believes that short-term tensions may be easing. This pushed crude oil futures prices down rapidly.

However, significant uncertainty remains regarding the development of the situation. Iran has stated that there are currently no direct negotiations with the United States, and communication is only being maintained through Oman regarding navigation in the Strait of Hormuz. While some intermediaries are pushing to restore the previously interrupted framework, the market is currently seeing more of a ceasefire intention than an informal agreement. The previous rise in oil prices was based on expectations of supply risks, and the current decline is similarly based on expectations of improved diplomacy; actual supply changes have yet to materialize.

From the supply side, there are no clear signs of improvement in the crude oil market. The number of energy transport ships passing through the Strait of Hormuz daily over the weekend remained significantly lower than normal, and this passage typically handles about one-fifth of global maritime energy transport. If transport restrictions continue, the global crude oil supply chain may still be disrupted. Facing pressure, the shipping risks near the Bab el-Mandeb Strait persist, forcing some oil-producing countries to take longer routes for exports, increasing transportation costs.

Therefore, current crude oil price movements reflect more the financial market's anticipation of future supply changes than a genuine improvement in the supply-demand balance in the real market. WTI crude oil fell nearly 9% in a single day, but global oil transportation bottlenecks have not been completely resolved. The market is trading on "expectations of diminishing supply risks" rather than actual new supply.

Investors' focus has shifted from simple geopolitical risks to a "dual factor": whether Middle Eastern supply chains have truly recovered and whether global economic demand can be sustained. Similar risk trades have occurred repeatedly before, with oil price increases often forming quickly, only to be followed by even faster declines as market sentiment recovers.

From a technical perspective, WTI crude oil remains highly volatile in the short term. The market is currently testing support near the $80 mark. If this area holds, oil prices may see a technical rebound; however, a break below this key support could further test the important trend level established since spring.

Conclusion:

This sharp drop in WTI crude oil is essentially a result of the market rapidly withdrawing risk premiums. Improved ceasefire expectations have driven funds out of the market, but the incomplete recovery of the physical supply chain means that oil prices remain in a tug-of-war between fundamentals and market sentiment. In the short term, the $80 area will be a crucial battleground between bulls and bears. The market needs to pay attention to Middle Eastern transportation conditions, Federal Reserve policy signals, and US economic data. If supply constraints persist, oil prices still have a basis for a rebound; however, if global economic demand slows while expectations of supply recovery strengthen, oil prices may face further downward pressure. The core variable in the future crude oil market will gradually shift from "conflict risk" to a rebalancing of "the speed of supply recovery and the intensity of demand growth."

Gold Bulls and Bears Clash! Oil Price Plunge Offers a "Breakthrough" for Gold

At the beginning of the week, when US President Trump stated that the US had "enough patience to reach a new agreement with Iran," the international gold market had just experienced a dramatic week. Spot gold gapped up nearly $40 to around $4096, briefly surging to $4115, but subsequently gave back most of its gains. Meanwhile, Brent crude futures plummeted by more than 8%, breaking below the $90 mark. This rise and fall reflects a profound paradox currently facing the gold market: easing geopolitical tensions should have weakened safe-haven demand, but the cooling of inflation expectations brought about by the oil price plunge has instead opened a window of opportunity for gold. Gold is at a crossroads, caught in a complex web of conflicting forces: the pause in the US-Iran conflict, the sharp drop in oil prices, the strengthening dollar, and the upcoming Federal Reserve interest rate decision.

The Chain Reaction of the Oil Price Plunge: An Unexpected Help for Gold

Gold has long been seen as a hedge against inflation, but the market's reaction to inflation is not linear. When rising oil prices push up inflation expectations, the market tends to bet on the Fed raising interest rates to curb inflation. Rising interest rates increase the opportunity cost of holding gold, a non-interest-bearing asset, thus suppressing gold prices. This is the root cause of the previous anomaly of "rising oil prices, falling gold prices." However, when oil prices plummet, inflation concerns cool, and market expectations for further Fed tightening of monetary policy decrease, providing support for gold.

Following the ceasefire proposal from the mediators in the US-Iran conflict, market expectations for a de-escalation increased, lowering the recent rebound in oil prices. Energy inflationary pressures weakened, reducing market concerns about further Fed tightening of monetary policy, thus supporting gold prices.

Oil prices have shifted from being an "inflation catalyst" to a "rate hike relief valve," providing an unexpected rebound opportunity for gold. The sharp decline in crude oil prices helped alleviate inflation concerns and dampened bets on a Fed rate hike, which the market viewed as a supporting factor for gold.

The Dollar's Reversal: The Ceiling for Gold's Rebound

The seesaw relationship between the dollar and gold is particularly evident in the current market. Easing geopolitical tensions have put some pressure on the dollar, as some geopolitical risk premiums have been eliminated. However, traders seem unwilling to make aggressive bearish bets on the dollar, choosing instead to wait for more clues about the Fed's policy path.

Meanwhile, US economic data has also provided support for the dollar. Strong economic data reinforced market assessments of the resilience of the US economy and provided justification for the Fed to maintain high interest rates.

For gold, the Fed's policy direction is crucial. If the Fed keeps interest rates unchanged, the precious metals market may experience a short-lived rebound. However, if the Fed unexpectedly raises rates or releases stronger hawkish signals, gold prices may face new downward pressure.

A Crossroads Ahead: Gold's Outlook Amidst a Complex Variable Landscape

Looking ahead, the gold market faces the interplay of multiple variables. Geopolitically, the US-Iran situation remains far from settled. Trump has clearly stated that the US will resume military strikes against Iran if a new ceasefire agreement is not reached. Meanwhile, tensions in the Red Sea continue to escalate, with Saudi Arabia announcing the destruction of a drone originating from Iraq, and the Houthi rebels in Yemen claiming to have attacked Saudi oil infrastructure. The Middle East conflict is spreading in multiple directions.

In the medium to long term, structural support for gold remains. Continued gold purchases by global central banks provide long-term support. The People's Bank of China has increased its gold holdings for the 20th consecutive month. In the first quarter of 2026, central banks worldwide made net purchases of 244 tons of gold, the strongest quarterly performance in over a year. Geopolitical uncertainty and global debt pressures also enhance the strategic allocation value of gold.

Conclusion:

The current gold market is at a delicate juncture, tug-of-war between multiple forces. A respite in geopolitical tensions provides short-term support for gold, but a strong dollar and uncertainty surrounding the Federal Reserve pose upward resistance. The plunge in oil prices is a double-edged sword—while easing inflation concerns and lowering expectations of interest rate hikes, it has also diminished gold's appeal as an inflation hedge.

The $4,000 level has become a fiercely contested battleground for gold bulls and bears. On the upside, $4,200 is a significant resistance level; on the downside, $3,940 is a key defensive line defending the previous lows. Until the Fed's policy path becomes clearer, gold prices will likely maintain a range-bound pattern with a ceiling and a floor.

Japanese Yen: Intervention Risks and the Bank of Japan's Stance

The Bank of Japan's decision last week to keep its key policy rate unchanged at 1.00% was not surprising. The Bank of Japan also released an updated "Economic Activity and Price Outlook," which included some hawkish elements. The yen surged 2% last Thursday—the USD/JPY pair plummeted from above 163 to below 158, and further to below 157 before the weekend. This move was attributed to possible intervention by the Japanese Ministry of Finance during the New York trading session. They emphasized that the Bank of Japan's decision to maintain its policy rate at 1.00% and its slightly hawkish inflation outlook, while offering limited guidance on accelerating policy tightening, suggests that USD/JPY buyers may soon return despite the risk of intervention.

"Maintaining the key policy rate at 1.00% was not surprising, nor was the 8-1 vote, given Governor Hajime Takata's well-known hawkish stance. The Bank of Japan also released an updated 'Economic Activity and Price Outlook,' which included some hawkish elements."

"The summary page, as always, mentions upside inflation risks, but we do see from the report's wording that foreign exchange movements contribute more to these upside risks. Besides foreign exchange, AI demand was also mentioned and needs 'attention.' The national core CPI forecast for fiscal year 2026 was lowered to 2.5% from 2.8%, but the forecast for fiscal year 2027 was actually revised upward to 2.4% (previous 2.3%), highlighting accumulating inflationary pressures."

"The Ministry of Finance's intervention last week sparked market speculation that the Bank of Japan might release a more hawkish message to reinforce yesterday's yen buying. Although today's communication from the Bank of Japan indicated further monetary tightening, this does not necessarily mean that it plans to accelerate the pace of tightening from the current once every six months."

"The Ministry of Finance tends to intervene a second time, so the market may now be hesitant to buy USD/JPY, but given the BOJ's lack of a firm stance on the potential necessity of increasing the pace of monetary tightening, the risk of buyers returning soon remains."

Conclusion:

The market has priced in at least one more rate hike before the end of the year, and Ueda's wording today will determine whether the market anchors its expectations to October or December. For traders, today's BOJ meeting is not a "known event," but a real "policy catalyst"—the next stage of the yen's direction will be determined the moment Ueda speaks.

Overview of Important Overseas Economic Events and Matters This Week:

Monday (August 3): Eurozone July Manufacturing PMI Final Reading; UK July Manufacturing PMI; US July ISM Manufacturing PMI

Tuesday (August 4): US June Durable Goods Orders (MoM, revised); US June JOLTs Job Openings (thousands); US June Factory Orders (MoM)

Wednesday (August 5): Eurozone June Producer Price Index (MoM); US July ADP Employment Change (thousands); July ISM Non-Manufacturing PMI; US EIA Crude Oil Inventory Change (thousands of barrels)

Thursday (August 6): Eurozone June Retail Sales (MoM); US Initial Jobless Claims (thousands); US June Wholesale Sales (MoM)

Friday (August 7): US July Unemployment Rate; US July Average Hourly Earnings (MoM) US July Non-Farm Private Sector Employment Change (Thousands); Canada July Employment Change (Thousands); Canada July Unemployment Rate

Disclaimer: The information contained herein (1) is proprietary to BCR and/or its content providers; (2) may not be copied or distributed; (3) is not warranted to be accurate, complete or timely; and, (4) does not constitute advice or a recommendation by BCR or its content providers in respect of the investment in financial instruments. Neither BCR or its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.