Traders abandon bets on loose monetary policy for the year, Europe warns inflation may reach 6.3%, gold continues to decline for multiple days.

Against the background of escalating energy prices due to the ongoing conflicts in the Middle East, bond traders are no longer betting on the Federal Reserve cutting interest rates within the year. They have even started hedging against rate hikes. Meanwhile, the European Central Bank has warned that inflation could rise to 6.3% in 2027 in extreme scenarios, while the price of gold continues to fall under the dual pressure of rising rate expectations and a stronger US dollar. The rapid disappearance of rate cut expectations has become one of the most significant changes in the current market. Influenced by the Bank of England's strong statement of being "prepared to tackle inflation", investors generally believe that major central banks worldwide will prioritize fighting inflation rather than supporting economic growth. Yields on US and European bonds have risen across the board, with the 2-year US bond yield, the most sensitive to policy, rising to 3.89%, indicating that the market has largely ruled out the possibility of a rate cut by the Federal Reserve within the year. Some traders have even started betting on the risk of rate hikes in the coming months. Market observers point out that the current bond market sell-off is mainly being driven by outflows of funds and a lack of buying. With tensions continuing to escalate between the US and Iran, the market expects the war to last for several months or even longer. The transmission effect of rising energy prices on inflation is being re-evaluated. Meanwhile, the US labor market continues to perform strongly, with the latest initial jobless claims unexpectedly dropping, weakening the urgency for the Federal Reserve to support the economy through rate cuts. In Europe, expectations of upside risks to inflation are also significant. The European Central Bank stated in its latest economic forecasts that in extreme scenarios, where energy supply is severely disrupted and conflicts continue until the end of 2026, inflation in the Eurozone could rise to 6.3% in the first quarter of 2027, while the economy would experience a brief recession. Even in the baseline scenario, inflation in the Eurozone is still expected to be 2.6% this year. ECB President Lagarde stated that the current inflation risks are clearly tilted to the upside, while economic growth faces downward pressure. The market has begun to bet that the ECB will raise rates at least twice in 2026 to combat inflation. With a significant adjustment in rate expectations, the gold market has suffered a noticeable impact. As oil prices rise and inflation expectations heat up, coupled with the resetting of the Federal Reserve's rate cut expectations to zero, the attractiveness of gold as an interest-free asset has declined. Since the outbreak of the Middle East conflict, gold prices have fallen by around 13%, continuously declining for several days. At the same time, the US dollar has strengthened due to safe-haven demand, rising by around 2% since the end of February, further suppressing gold prices denominated in US dollars. Gold mining stocks are also under pressure. The NYSE Arca Gold Miners Index has fallen by 10% and hit its lowest point since December last year. This sector had seen significant gains in 2025, but as the market environment reversed, funds began to flow out. Analysts point out that the market is currently facing the dual pressure of "falling gold prices + rising energy costs", which could squeeze the profit margins of mining companies. However, some institutions believe that if oil prices stabilize and pressure from interest rates and the US dollar eases, gold and related assets still have the potential for a rebound. Large mining companies have benefited from the sharp rise in gold prices in recent years, with relatively robust balance sheets, and may have some resilience.