Fed decision, US-China talks & Gold in focus

Global equities extended gains on Tuesday amid expectations around the Fed cutting interest rates on Wednesday.

Wall Street hit fresh all-time highs overnight with the S&P 500 conquering 6600 thanks to Fed cut bets, a tech rally, and optimism over US-China trade talks. In the FX space, the USD has depreciated against almost every G10 currency with the Dollar Index tumbling toward 97.15.

The biggest macro event this week will be the Fed rate decision, which is widely expected to conclude with a rate cut for the first time in 2025.

But the question is how aggressively the Fed will be on rates beyond September.

Back in June, the dot plot showed Fed officials in favour of two 25bp rate cuts in 2025. Traders have fully priced in a Fed cut in September with the odds of another cut by October at 82% and a third cut by December at 72%.

The dot plot may need to match or exceed these dovish expectations to keep equities and gold prices buoyed. Anything less could trigger a technical correction.

On the trade front, there seems to be optimism over the progress of US-China talks in Madrid with Trump and Xi Jinping scheduled to speak on Friday.

In the UK, the BoE is expected to leave interest rates unchanged on Thursday but any clues on future policy moves may spark volatility. Traders are pricing in a 35% probability that the BoE will cut rates by the end of 2025.

Looking at precious metals, gold touched a fresh all-time high at $3690 this morning, pushing 2025 gains to over 40%.

Silver is also on a tear, touching a fresh 14-year high above $42.50. Should the Fed signal further rate cuts beyond September, this may keep the rally alive on gold with $3700 acting as the first of many bullish checkpoints.