June 17, 2025

“While geopolitical tensions bubble away in the background, the focus over the next few days is on British inflation data and the flood of central bank decisions. Tomorrow’s Federal Reserve meeting will be key for the dollar.”

Sam Cornford – Head of Trading

USD

There have been some signs of stress in equities and in oil, but the FX market appears to be relatively confident that the Israel-Iran conflict will remain contained despite continued missile exchanges. Iran has suggested to the US through proxies that it would like a ceasefire and Trump left the G7 summit early, though he denied that it was the reason for leaving. The key for currencies is how persistent or contagious this conflict will be – since the October 2023 Hamas attacks, markets have tended to spring to kneejerk selling on the first headlines and then to unwind those trades quickly, once it became clear that they would not have a material effect on the global economy. If the conflict is over by this week, then little harm will have done. If the US gets dragged in or Iranian oil capabilities become seriously damaged, then safe havens (certainly CHF and JPY, and potentially USD and EUR) are likely to benefit.

Today, the main piece of data is the US retail sales print for May, which might contain some signs of weakness in US goods demand. The G7 summit continues, too, although without Trump present at this stage. There will also be some caution heading into the FOMC decision tomorrow evening, where much of the talk is around how many cuts that officials will signal in the dot plot.

GBP

Like many currencies this week, GBPUSD is being moved solely by the dollar leg. It very briefly traded close to a three-year high against the greenback yesterday, but GBPEUR remains stuck in the 1.17s for now. Trump signed an executive order to implement the US-UK trade agreement yesterday, firmly putting into place the cuts to tariffs on the likes of cars and aerospace components. The next key event for sterling is tomorrow morning’s CPI inflation print, which markets are expecting to drop from 3.5% (or rather 3.4%, given the latest ONS error that skewed last month’s figure) to 3.3%. A significant downside surprise would be needed to sway the BoE towards a cut on Thursday, with the recent data alarming the MPC and the market pricing in just a 4% chance.

EUR

The euro has settled into the 1.15-1.16 range as markets remain calm about geopolitical tensions and await tomorrow’s Fed decision. This week’s main piece of data is the ZEW sentiment survey this morning, where the consensus is hoping for an improvement in both current sentiment and future expectations as the tariff panic subsides slightly. ECB President Lagarde is still trying to capitalise on the dollar’s weakened attractiveness, having published a ‘global euro’ manifesto in the FT this morning. She argued that Trump’s policy uncertainty and the dash from the dollar presents a unique window of opportunity for the euro to step in as a prominent reserve asset.

Markets

Unlike the calmness in FX, European equities have turned sharply negative this morning as oil prices remain elevated, with futures pointing at >1% drops across most major indexes. The picture in the US is slightly better, though losses still look likely.

Main Economic Events (All Times CET)

8:30am: Swedish Unemployment
11:00am: Eurozone ZEW Sentiment
2:30pm: US Retail Sales

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