Fed on Hold, Dollar in Decline, Gold in Ascent: Markets Brace for a Volatile Second Half

Recent U.S. economic data points to a complex and conflicting macro picture. Core inflation (CPI, PCE) is softening, while Non-Farm Payrolls (NFP) surprised to the upside and unemployment remains anchored near 4.2%—consistent with the Fed’s projections. Despite lower inflation, persistent labor market strength is keeping the Federal Reserve in wait-and-see mode, with markets now pricing in the first 25 basis point cut likely in October, followed by a potential second and final cut before year-end.

However, risks are skewed. Sticky inflation could re-emerge, especially as the delayed effects of U.S. tariffs on imports begin to filter through in the second half of the year. Trump’s vocal pressure on the Fed via social media—urging immediate rate cuts to reduce debt servicing costs—is adding political noise, but not shifting the Fed’s cautious stance. Rate expectations remain stable, with the upcoming FOMC communication being key for market direction.

The U.S. dollar has weakened significantly, breaking key technical support levels under 98, with three-year lows now in sight. Capital outflows from the dollar are benefitting the euro, which recently breached 1.16 and may target 1.20 in the near term. The EUR/USD rally is being driven by technical flows and an improving European macro picture.

The Australian dollar, meanwhile, remains range-bound between 0.64–0.65, lacking clear direction. Brief rallies following CPI data have quickly reversed, reflecting uncertainty over Chinese demand, RBA policy, and the broader global trade outlook. With little movement on the China-U.S. trade front and minimal domestic drivers, the AUD is likely to remain in consolidation until a new catalyst emerges.

Gold continues to shine amid risk aversion and dollar weakness. Prices have surged from $3,000 to highs above $3,400 in just weeks, with traders now eyeing $3,600 by year-end. If global uncertainty escalates, especially in relation to Fed policy delays, tariffs, or geopolitical flashpoints, some even speculate a longer-term push toward \$4,000. For now, gold remains one of the most attractive long plays in a high-risk, high-uncertainty environment.

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