June 16, 2025

“This week is packed with central bank decisions, and policymakers now must contend with an oil price spike and geopolitical tensions in the Middle East. Japan, the UK, the US, and Norway are all expected to stay on hold, while further cuts are likely in Sweden and Switzerland.”

Tim Hallinan – Trading Director

USD

The dollar’s initial gains from the Israel-Iran conflict on Friday have not lasted and it is on the back foot again this morning. Oil prices have surged dramatically this month, but the flight-to-safety in FX that we saw last week is already being unwound this morning, despite events only escalating further over the weekend. In the short term, it might be that the conflict generates volatility rather than significant direction. In the long run, higher uncertainty and rising fuel prices would be a stagflationary impulse – higher inflation and lower growth – that would create a headache for central banks. A worst-case scenario would see Iran blocking the Strait of Hormuz or hitting Western military assets and dragging the US into the war. And an optimistic outlook would expect Israeli strikes to remain limited to domestic gas reserves rather than oil exports and involve a quick ceasefire deal, potentially brokered by the US. Trump reckons there is a ‘good chance’ of a deal, though he also believes they may need to ‘fight it out’ first.

This week would have incredibly busy anyway. The geopolitical situation in the Middle East aside, there are six G10 central bank decisions from the UK, US, Switzerland, Japan, Sweden, and Norway. The oil price uncertainty adds another element to the Fed decision, where the market is certain they will keep rates steady – expect Trump to express his frustration about that on Truth Social afterwards.

GBP

The pound is holding its ground against a soft dollar but is struggling to retrace its losses against the euro after the soft jobs and growth data from last week. The data calendar brings May’s CPI inflation report on Wednesday, ahead of Thursday’s Bank of England decision. The consensus for a 3.3% inflation print explains why only a 7% probability is priced in for a rate cut, and undoubtedly the uncertainty in the oil market will give the hawks another reason to remain cautious. At the same time, however, last week’s data was decidedly soft and could insert a dovish element to some policymakers’ views on the labour market.

EUR

The euro is heading back towards the 1.16 mark this morning as the dollar sheds its gains from Friday. It is a relatively slow week for the eurozone’s macroeconomic calendar, so geopolitics and the central bank bonanza that will move the euro. Across Europe, we get decisions from the Swiss National Bank, the Riksbank, and the Norges Bank. The SNB will be particularly interesting given that inflation recently fell below 0% and that there is a 20% implied probability that rates not only go down to 0%, but into negative territory.

Markets

US stocks took a dive as investors fretted about Israel and Iran on Friday, but much like FX, the market appears to have stopped panicking already. Futures point to positive opens across both the US and Europe this morning.

Main Economic Events (All Times CET)

2:30pm: US Empire Manufacturing Indez

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