FX.co ★ Gold Jumps as Soft US Inflation Tempers Fed Hike Expectations

Gold surged nearly 2% to $4,080 an ounce on Tuesday after weaker-than-expected US inflation data led investors to scale back expectations for further Federal Reserve interest rate hikes. Annual inflation eased to 3.5% in June, while core inflation slowed to 2.6%, both undershooting forecasts. The CPI also declined 0.4% month over month, marking its first drop since 2020.

Despite the moderation, inflation remains well above the Fed’s target. Investors are now focused on Federal Reserve Chair Kevin Warsh’s first congressional testimony for clues about the future policy path. Money markets still price in better than a 50% probability of a rate increase by the end of the quarter, with expectations underpinned by renewed geopolitical risks.

US President Donald Trump announced that the United States would reinstate a blockade on Iranian vessels transiting the Strait of Hormuz and urged countries that benefit from US efforts to secure this critical shipping corridor to contribute to the associated costs.