Fed Holds Rates; Markets Eye GDP, PCE - CPT Markets

Market Wrap-up: Fed Hold Sparks Volatility Ahead of GDP and PCEFinancial markets experienced sharp volatility over the past session after the Federal Reserve kept the federal funds rate unchanged at 3.50%-3.75%. However, the meeting marked the first time in years that three FOMC members dissented, arguing that the Fed should have raised rates by 25 basis points to further contain inflation.

The three dissenting votes came from Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan. They argued that recent inflationary pressures have been fueled by both President Donald Trump's import tariffs and higher energy prices resulting from tensions with Iran.

Despite the hawkish dissent, the post-meeting statement provided no clear guidance on the timing of the next policy adjustment. According to the June projections, FOMC members continue to expect one additional 25-basis-point rate hike before the end of 2026.

The Fed maintained its assessment that the US economy continues to expand at a solid pace, although uncertainty remains elevated, partly due to ongoing geopolitical tensions in the Middle East. Chairman Kevin Warsh reiterated the Fed's commitment to returning inflation to its 2% target while warning that the conflict could prove prolonged.

The US Dollar Index (DXY) fell 0.5% to 100.90, while the 30-year Treasury yield climbed 11.5 basis points to 5.211%, its highest level since 2007.

The divergence between a weaker dollar and higher long-term yields suggests that investors expect the Fed to keep short-term rates unchanged for longer, while demanding higher compensation for persistent inflation risks. In other words, markets appear unconvinced that inflation will return to target quickly despite the Fed's commitment.

US equities closed sharply lower, with the Dow Jones falling more than 1,150 points, or over 2%. The Nasdaq Composite and the S&P 500 also lost more than 1.5% during the session.

The broad-based decline in the US dollar helped gold rebound nearly 2%, pushing prices back above the $4,100 per ounce level.

According to the CME FedWatch Tool, markets are now pricing a 64% probability of a Fed rate hike at the September meeting, down from roughly 81% before the policy announcement.

Looking ahead, investors will focus on US second-quarter GDP and the Fed's preferred Personal Consumption Expenditures (PCE) inflation data. Annualized GDP growth is expected to remain at 2.1%, while Core PCE inflation is forecast to rise 0.2% MoM and 3.3% YoY in June.

XAU/USD: Gold Climbs Above $4,100 After Fed Decision 

Key takeaway:

Gold rebounded nearly 2% during the July 29 session after the Federal Reserve left interest rates unchanged.

The US dollar weakened following the policy decision, while investors continued to assess Chairman Kevin Warsh's comments for further clues on the Fed's policy outlook.

According to the CME FedWatch Tool, markets are now pricing a 64% probability of a Fed rate hike at the September meeting.

Technical Outlook:

Daily Bias: Cautiously Bearish

Support: 4,000

Resistance: 4,100

WTI: Oil Jumps on Trump Warning and Iran Risks 

Key takeaway:

Oil prices surged during the July 29 session after President Donald Trump vowed a strong US response following Iran's missile attack on American forces in the Middle East, raising concerns that geopolitical tensions could escalate further and disrupt global oil supplies.

In an interview with Fox News, Trump stated that Iran "will suffer a heavy blow" and added, "We will hit them very hard."

According to analysts, Iran and the Houthi forces are seeking to exert greater control over shipping activity through the Strait of Hormuz and the southern Red Sea, two strategic maritime routes that are critical for Middle Eastern oil exports.

Technical Outlook:

Daily Bias: Bullish

Support: 81.50

Resistance: 85.72

DXY: US Dollar Slides After Fed Holds Rates 

Key takeaway:

The US dollar weakened sharply during Wednesday's US session after the Federal Reserve kept interest rates unchanged.

The Fed stated that economic activity continues to expand at a steady pace, while inflation remains elevated, partly due to energy-related supply shocks.

Although several policymakers dissented in favor of a rate hike, the decision to leave rates unchanged led markets to question whether there will be sufficient support within the FOMC for a September increase.

Technical Outlook:

Daily Bias: Bearish with Rebound Potential

Support: 100.76

Resistance: 101.11

EUR/USD: Euro Gains Ahead of Eurozone GDP Data 

Key takeaway:

The euro advanced after the Federal Reserve kept interest rates unchanged, while traders shifted their focus to upcoming Eurozone and German GDP data.

Economists expect Eurozone GDP to show modest quarterly growth of 0.2% in Q2 after contracting 0.2% previously. Germany's economy is projected to expand 0.1% quarter on quarter in Q2, compared with 0.3% in the previous reading.

Stronger than expected GDP figures could provide additional short-term support for the single currency.

Technical Outlook:

Daily Bias: Bullish with Correction Risk

Support: 1.14359

Resistance: 1.14729

USD/JPY: Japanese Yen Strengthens Before BoJ Decision 

Key takeaway:

The Japanese yen strengthened after the Federal Reserve kept interest rates unchanged despite maintaining a hawkish policy stance.

However, escalating tensions in the Middle East could support the US dollar against the yen if geopolitical risks continue to intensify.

Meanwhile, traders are awaiting the Bank of Japan's interest rate decision later on Friday. The central bank is widely expected to leave its policy rate unchanged at 1.0% during its July meeting while keeping the door open for further rate hikes through hawkish guidance.

Technical Outlook:

Daily Bias: Bearish

Support: 163.24

Resistance: 163.80

Markets are now trading at the intersection of monetary policy uncertainty and geopolitical risk. While the Fed kept rates unchanged, the unusually large number of hawkish dissents reinforced concerns that inflation remains a policy challenge.

At the same time, Trump's tougher stance on Iran supported oil prices, adding to inflation expectations even as the US dollar weakened following the FOMC decision.

The combination of a softer dollar and falling equity markets lifted gold, while higher long-term Treasury yields reflected lingering concerns that inflation could remain elevated despite stable policy rates.

In FX, the weaker greenback supported the euro and the Japanese yen, although geopolitical tensions continue to provide an underlying bid for the US dollar against safe-haven currencies.

Attention now shifts to the US Q2 GDP and Core PCE reports. These releases will be critical in determining whether markets continue to scale back expectations for a September rate hike or revive pricing for further Fed tightening.

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