Amid escalating geopolitical conflicts and instability in the Middle East, the dollar market nearly missed a key event that could have influenced short-term trends—the release of the minutes from the Federal Open Market Committee (FOMC) March meeting.

Previously, the market generally expected the Federal Reserve to release a more dovish policy signal, but the actual situation has exceeded expectations: the Federal Reserve has now officially launched the expectation management mode. On the surface, it still maintains the long-term position of "implementing interest rate cuts in the future", but through the adjustment of the wording in the meeting minutes, it has made it clear that the interest rate cut plan has been significantly postponed, and in fact, it has entered a passive waiting stage of "maintaining high interest rates and observing data changes".



Looking back at the policy statements made in March, Federal Reserve officials explicitly acknowledged at the meeting that the probability of a slowdown in inflation was continuing to decline. This trend was not solely driven by soaring international oil prices, but rather the result of a combination of factors. On the one hand, the transmission effect of the tariffs previously imposed by the United States on many countries on domestic prices is gradually becoming apparent and is expected to be long-term, with upward pressure on the prices of related goods likely to persist for the next 1-2 years. On the other hand, as the high-price environment persists for an extended period, Americans have gradually developed a habit of "coexisting with high inflation." This shift in psychological expectations has directly led to a significant increase in the consumer inflation expectations index, further solidifying inflation stickiness.

Although the Federal Reserve emphasized in its minutes that it is closely monitoring various risks from rising inflation, it also pointed out that the downside risks to the economy caused by the slowdown in labor market growth are more prominent. This shift in policy focus has led to confusion in the market's predictions of the Fed's next actions.

The brief news of a ceasefire in the Middle East gave the market a much-needed boost: investors' expectations for the probability of the Federal Reserve implementing policy easing before the end of the year jumped from 12% before the announcement to nearly 50%, and gold prices and the euro-dollar exchange rate rose in tandem. However, this positive sentiment was short-lived. The subsequent release of the FOMC meeting minutes quickly reversed market sentiment, and the probability of policy easing by the end of the year was pushed back down to 25%.

Investors are gradually realizing that even if international crude oil prices remain stable and do not experience further significant increases, their transmission effect on global prices will continue. Inflation data from various countries are likely to remain high in the coming months, forcing the Federal Reserve to maintain its current high interest rate level and making a rate-cutting cycle unlikely in the short term. For the foreign exchange market, it is premature to consider a loosening of the Federal Reserve's monetary policy. Similarly, expecting a sustained rebound in the euro/dollar exchange rate lacks solid fundamental support.

It's worth noting that the short-term surge in the euro against the dollar after the ceasefire announcement was not driven by increased market confidence in the Eurozone's economic recovery, nor by precise bets on euro appreciation. Instead, it primarily stemmed from speculative funds liquidating previously accumulated long dollar positions. From a Eurozone economic fundamentals perspective, the potential risks of Middle Eastern geopolitical conflict persist until Washington and Tehran formally sign a peace agreement. Coupled with persistently high international oil prices suppressing European manufacturing and consumer markets, the Eurozone economy will remain fragile and unlikely to provide effective support for the euro exchange rate.

The gold market reacted more emotionally to this event, prematurely betting on a complete end to the Middle East conflict and the start of a Federal Reserve interest rate cut cycle, leading to significant price volatility. From a current geopolitical perspective, the differences between the conflicting parties remain serious, with no substantial progress towards reconciliation: US President Trump publicly declared a "complete victory" and demanded huge reparations from Iran, which he considers the "defeated party"; while Iran maintains a hardline stance, firmly controlling the Strait of Hormuz, a crucial global oil shipping route. This standoff adds further uncertainty to the regional situation.

Historically, if the US-Iran negotiations ultimately break down, the global market may face a repeat of the severe situation of the late 1970s—the oil crisis at that time directly triggered a surge in the US consumer price index, with inflation exceeding double digits. To combat hyperinflation, the Federal Reserve adopted aggressive interest rate hikes, raising the benchmark rate to a historic high of 20%. This policy directly led to a severe blow to gold prices between 1980 and 1999, with a cumulative drop of 85%, from a peak of $850 per ounce to less than $100. Affected by this, central banks around the world adjusted their reserve asset structures, beginning large-scale reductions in gold reserves. For example, the Bank of England sold 395 tons of gold in batches between 1999 and 2002, at a price that was even jokingly referred to as the "floor price." In recent years, emerging market countries such as Turkey have also begun to follow suit, gradually reducing the proportion of gold in their foreign exchange reserves. This global central bank-level gold selling will deal a heavy blow to gold bulls, severely hindering the recovery of gold prices.