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FOMC Governor Michelle Bowman commented that if inflation remains in check, she would support reducing the policy rate at the upcoming meeting. This would better align the rate with its neutral setting, keeping the labour market healthy.
Bowman is open to rate cuts as early as the July meeting. She emphasised the need to consider potential risks to the job market and noted minimal inflation impacts from trade policies.
Trade Policies And Inflation
Tariffs are expected to slightly affect inflation, while progress in trade reduces uncertainty. The ongoing Middle East conflict could increase commodity prices, and although the labour market remains strong, there are signs of emerging softness.
The AUD/USD pair recovered from its lowest point since May, buoyed by a positive shift in global sentiment following an Israel-Iran ceasefire announcement. The USD is under pressure, supported by renewed speculation of a Fed rate cut in July, affecting USD/JPY and influencing gold prices.
The cryptocurrency market saw a rebound as key assets recovered, driven by a ceasefire statement between Israel and Iran. The potential closure of the Strait of Hormuz is causing market concerns again, as this crucial sea passage is geopolitically sensitive.
Trading foreign exchange involves high risks and leverage, which can lead to significant financial losses. It is important to understand these risks and consult a financial advisor if necessary.
Shifts In Monetary Policy Expectations
Bowman’s statements signal a clear shift in tone from some previous communiqués. She’s making it known that the bar for easing may not be as high as markets feared earlier in the year. If inflation continues to drift sideways or dips further, the stage for a July rate cut begins to look more plausible. It’s worth noting she framed the labour market as a pillar still standing strong, though with minor fissures beginning to appear. We should treat that as her guidance that the overall economic engine is running well enough to tolerate some monetary easing—without immediate threat to employment.
She brushed aside the inflationary effects of trade policies, reducing the weight formerly placed on tariffs. Even as trade disputes rumble along in the background, their influence over core inflation appears to be fading. That may give the central bank more leeway to focus on domestic metrics instead. If overseas conflicts deepen, particularly in the Middle East, that could turn up the heat on energy markets again. For now, however, the resolution between Israel and Iran triggered a global sigh of relief, showing immediate impact on several asset classes.
The AUD/USD bounce didn’t come from domestic data shifts. Instead, relief in global tensions brought renewed confidence and carry appetite. Markets immediately began discounting more dovish expectations from Washington, leading to a broad pullback in USD strength and a continued unwind of defensive positioning. That’s been reinforced by unwinding safe-haven flows into the yen and a related pop in gold as the dollar receded. FX moves like these illustrate how susceptible current sentiment is to cross-border headlines—value isn’t being driven purely by fundamentals.
We also saw spillovers into crypto markets, which are increasingly acting as momentum proxies tied to geopolitical swings. That’s not to say these digital assets are decoupled from central bank expectations—far from it. Their rebound also likely reflects a nimble market leaning toward looser financial conditions ahead, especially if Middle East-related supply risks remain contained. Still, nerves remain shredded over the possible closure of the Strait of Hormuz. This goes beyond just oil—impacts to shipping corridors filter through various logistic and pricing chains.
From a trading point of view, proximity to a possible Fed pivot brings both opportunity and volatility. Rate-sensitive assets are already positioning. Some contracts, particularly short-dated ones, may be pricing in more dovish outcomes faster than fundamentals might justify. That creates room for sharp reversals if data disagrees with forward expectations. We need to watch labour readings, wage growth, and any fresh inflation prints closely ahead of July. Any signal out of sync with lowering rates could prompt a quick risk-off move, particularly now that positioning has become more one-sided.
Using leverage in these markets requires thoughtful execution. Volatility around news events or policy shifts doesn’t just hit foreign exchange—it can ripple into commodities, metals, and sectors tied to policy expectations. Given how closely gold and USD/JPY are tracking sentiment, those looking at directional bets should be mindful of wider correlation breaks, especially around sudden geopolitical developments. This environment demands a careful weighing of headlines, timing, and liquidity when trades are being structured. One-sided trades based solely on rate expectations without managing for political shocks may get caught flat-footed.
