June 18, 2025

“Market sentiment has naturally been subdued as speculation has grown that the US might get dragged into the conflict between Israel and Iran. The dollar appears to be acting as a safe haven again as oil prices rise, ahead of the June Fed decision this evening.”

Tim Hallinan – Trading Director

USD

There are plenty of reasons for markets to be cautious right now and the dollar eventually seemed to absorb that yesterday, as US retail sales softened, oil prices continued to rise, and the possibility of US military engagement in Iran grew more likely during day five of the Israel-Iran air war. Trump’s rhetoric took a turn and he threatened to kill the Iranian Supreme Leader in a Truth Social post, while reports have suggested that he is weighing up the diplomatic versus the military routes to resolving the conflict. Israel will need direct US involvement and capability if he decides that the nuclear enrichment facilities need destroying. The fact that the dollar gained quite strongly against most of its peers is probably linked more closely to its oil correlation than to safe haven gains, but nevertheless it shows that it has not fully lost that safety appeal.

Geopolitical escalation aside, today’s main event is the Federal Reserve rate decision. Trump might be calling for a full point cut, but the market is certain that policymakers will keep rates on hold as they wait for the impact of the tariffs to filter through. Powell’s comments and the infamous ‘dot plot’, which explicitly details officials’ projections for inflation, growth, unemployment, and interest rates, will likely be the main events here. Most expect them to stick to 50bps in cuts this year, as rising oil prices and recent tariffs keeping them cautious, even with emergent signs of economic weakness.

GBP

Sterling dropped to its lowest level in nearly three weeks against the dollar and its weakest in seven weeks versus the euro overnight. This morning’s CPI inflation provided little domestic support despite a slight beat (3.4% vs 3.3%) – that is because the services measure that the BoE closely tracks fell from 5.4% to 4.7%. Nevertheless, it is still well above target, and the market is 97% sure that the BoE is going to hold rates steady tomorrow. The risk for sterling will be if policymakers opt to shift their tone in the dovish direction and cite the increasingly soft jobs data.

EUR

The euro is suffering slightly from the rise in oil prices and Middle East escalation but is recovering somewhat this morning. Yesterday’s ZEW data broadly came in much better than expected, particularly on the expectations index, which headed back to the levels it reached during peak optimism about German fiscal spending plans back in March. Of course, though, the market is in the grip of geopolitics and this week’s wave of central bank decisions, so it had little immediate impact on the euro. One of those decisions came from the Swedish Riksbank this morning, which restarted its easing cycle  with a 25bp cut as it accepted that inflation and growth will be lower this year than forecast back in March.

Markets

Sentiment remained relatively subdued in the equity markets yesterday, though there are some signs of modest recovery this morning. Europe is opening slightly higher and US futures have ticked up.

Main Economic Events (All Times CET)

8:00am: UK CPI
9:30am: Riksbank Rate Decision
2:30pm: US Jobless Claims
8:00pm: Federal Reserve Rate Decision

To learn more about Ballinger Group, please visit our website or our LinkedIn page.