Geopolitics & Fed Policy: What Could Move Markets?
Global financial markets in mid-July 2026 were once again filled with challenges. The combination of geopolitical risks and uncertainty regarding the direction of US monetary policy was the main focus. Various factors, ranging from threats from Iran to statements by central bank officials, now have the potential to move the gold and currency markets in the coming days.
Middle East Geopolitical Dynamics
Tensions in the Middle East remain a focus for market participants. The Iranian Foreign Ministry issued a stern warning to Washington through the Tasnim news agency. Iran stated that the memorandum of understanding with the United States is valid only as long as its national interests are protected. Conversely, if any violations occur, Iran threatened to suspend all obligations and take retaliatory measures. This situation certainly boosted demand for safe-haven assets, such as gold and the US dollar, in the short term.
Meanwhile, more positive news came from Rome. Negotiations between Israel and Lebanon were reportedly progressing smoothly. The two sides have reached a preliminary agreement to establish two pilot zones as a first step towards troop withdrawal. However, this process will still require several days to reach final preparations.
Fed Policy Amid Inflation Uncertainty
Federal Reserve officials have given mixed signals regarding the direction of interest rates. Christopher Waller, in a Senate confirmation hearing, emphasised that the price stability target has not been achieved. Therefore, the Fed will continue to evaluate all policy tools to maintain economic growth. Waller is also optimistic that investment in artificial intelligence will support job growth despite medium-term challenges.
On the other hand, New York Fed President John Williams acknowledged that inflation remains too high. However, he sees optimistic signs that inflation may have passed its peak. He projects inflation will decline to 3.25% by the end of this year. Williams also added that the US labour market remains resilient, with unemployment projected at around 4.0%.
Signals from the US and Canadian Economy
Recent economic data has shown interesting movement. The US Producer Price Index (PPI) fell 0.3% in June, the largest decline since April 2025. This figure far exceeded market expectations. The decline was driven by lower energy costs. However, investment in artificial intelligence infrastructure continues to drive price increases in some sectors, leaving the possibility of further interest rate hikes open.
Meanwhile, the Bank of Canada chose to maintain its interest rate at 2.25%. This decision was made at its sixth consecutive meeting. Governor Tiff Macklem believes the current interest rate level is appropriate to support Canada’s economic recovery. However, the central bank remains vigilant about the impact of Middle East tensions and US trade policy.
Beige Book Economic Activity Report
The latest Beige Book report shows a moderate increase in economic activity across nearly all Federal Reserve districts. Consumer spending recorded a slight increase, pressured by fuel prices. Meanwhile, the manufacturing sector grew fairly steadily, primarily due to strong demand in the defence industry and data centres. However, supply chain disruptions remain a challenge that requires attention.
Upcoming Economic Agenda
Investors should pay attention to several important events that could trigger market volatility:
- UK GDP (May): To be released at 2:00 PM WIB.
- SNB Minutes: Scheduled for 3:30 PM WIB.
- US Retail Sales (June): Key data release at 8:30 PM WIB.
- US Pending Home Sales: Data will be released at 10:00 PM WIB.
- Fed Officials' Speeches: Lorie Logan is scheduled to speak at 12:30 AM WIB, followed by Jeff Schmid at 1:25 AM WIB.
Strategic Conclusion
The current market landscape remains fraught with uncertainty. Unresolved geopolitical tensions, coupled with the Fed's dynamic policy signals, require high vigilance. Furthermore, tonight's release of US retail sales data will be a major catalyst for price movements. Stick to your classic technical discipline in managing risk in the bond, gold, and major currency markets.
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Ady Phangestu
Ady Phangestu is the author of technical books on foreign exchange analysis, a foreign exchange practitioner and teacher who has held seminars in various parts of Indonesia together with HF Markets. He has been a part of the trading world since 2009.
Currently he is still active as a writer and provides online and offline lessons in the basics of foreign exchange and introduction to financial products.
Michalis HFM Analyst
