Morning Note: Gold's Retreat; Fed's Steady Hand; UK CPI Outlook

Gold Dips Despite Middle East Tensions

Gold slipped to around $3,370 per ounce on Wednesday during the Asian trading session at the time of writing, as a stronger U.S. dollar outweighed safe-haven demand sparked by escalating geopolitical tensions. The Iran-Israel conflict entered its sixth day, with Israel confirming strikes near Tehran and detecting missile launches from Iran. Adding to market anxiety, President Trump met with his national security team, fueling speculation of potential U.S. involvement and fears of a broader conflict.

At the same time, investors shifted their focus to the upcoming Federal Reserve policy decision, with the central bank widely expected to keep interest rates unchanged. However, markets are closely monitoring any signals on future rate moves, especially amid ongoing geopolitical risks and uncertainty over trade-related tariffs.

(Gold 8H Price Chart, Source: Trading View)

From a technical analysis perspective, gold has been in a bullish trend since mid-May 2025, rising from a low of $3,120 to a high of $3,450. However, it was recently rejected from the order block between $3,435 and $3,445, pushing the price lower. Currently, it is retesting the swap zone between $3,370 and $3,390. If the price finds support within this zone, the bullish momentum may resume, potentially driving the price higher. Conversely, if bearish pressure breaks the price below this zone, gold could decline further to retest the support area between $3,275 and $3,295.

Fed Likely to Hold Rates at 4.5%

The Federal Reserve's benchmark interest rate currently stands at 4.5%, a level it has maintained in recent policy meetings. Market expectations suggest that the Fed will hold rates steady at 4.5% in the upcoming decision scheduled today at 1800 GMT. While inflation has eased from its peak, it remains slightly above the Fed’s 2% target and has recently shown signs of stalling. This has led policymakers to adopt a cautious stance, as they weigh the risk of cutting rates prematurely against the potential for inflation to re-accelerate.

Moreover, the Fed has emphasised a data-dependent approach, signalling that further hikes are unlikely unless inflation re-accelerates significantly. The current rate allows the central bank to continue assessing the lagged effects of previous tightening while keeping flexibility to respond to any resurgence in inflation or unexpected economic shocks. Given these dynamics, markets and analysts broadly agree that maintaining rates steady is the most prudent course of action for now.

(S&P 500 Index Daily Chart, Source: Trading View)

From a technical analysis perspective, the S&P 500 index has been in a bullish trend since early April 2025, rebounding from the support zone of 4,900 – 4,960, as evidenced by a series of higher highs and higher lows. Recently, it broke above the swap zone of 5,800 – 5,850, retested it, found support, and continued moving upward. This valid bullish structure may potentially drive the index toward a retest of the resistance zone at 6,100 – 6,150.

UK CPI in Focus: Cooling Momentum Ahead?

The UK's year-on-year inflation rate stood at 3.5% in April, with the same rate forecasted for May. Meanwhile, the month-on-month inflation rate was 1.2% in April, with a significant slowdown expected in May to just 0.3%. This anticipated moderation is largely due to base effects and seasonal factors. April typically sees a sharp rise in prices due to tax and energy adjustments, while May tends to reflect more stable consumer prices. Additionally, easing energy costs and reduced food price pressures are likely contributing to the expected deceleration in monthly inflation growth. This data is set to be released today at 0600 GMT.

(GBP/JPY Daily Chart, Source: Trading View）

From a technical analysis perspective, the GBP/JPY currency pair has been moving in a bullish trend since early April 2025, as indicated by a series of higher highs and higher lows. However, it was recently rejected from the resistance zone of 196.20 – 196.70 and the upper boundary of the descending channel. The pair is currently retesting the swap zone between 194.40 and 194.90. If it breaks below this zone, it may potentially move lower to retest the support area at 193.00 – 193.50. Conversely, if the pair finds support within this zone, it may resume its upward movement and retest the resistance zone.