June 19, 2025

“Geopolitical risks continue to dominate the newsflow, and the dollar is moving higher with the headlines. Today brings central bank decisions in the UK, Norway, and Switzerland.”

Sam Cornford – Head of Trading

USD

Yesterday’s Federal Reserve decision had relatively little impact on FX, and geopolitics remain the key driver for the dollar’s recent gains. Trump has retained optionality on joining the Israeli campaign in Iran, even as reports have suggested the military preparing for a possible strike at the weekend, saying yesterday that ‘I may do it, I may not do it’ and that he was running out of patience with Iran. Oil continues to close in on $80/barrel and the dollar has suddenly become a safe haven again this week, at least with geopolitics. Iran have threatened direct retaliation to any US military involvement, so escalation is in Trump’s hands right now.

The Federal Reserve stayed put last night, as everyone expected, and the dot plot again showed expectations for two rate cuts before the end of the year. The message appeared to be that perhaps they would be inclined to cut in normal times, but that the uncertainty surrounding the incoming tariff impact means that they are going to need to hold steady for now. As Powell argued: ‘ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer’. While waiting for this to show up in the data, the Fed is not really much in control of FX right now. No US data today for the Juneteenth holiday, so the focus will be on Iran and the central bank decisions in the UK, Switzerland, and Norway.

GBP

Sterling is back in the lower 1.34s ahead of today’s Bank of England decision. A rate hold is almost 100% priced today, thanks to the strong inflation data of late and the cautious commentary coming from policymakers. The downside risk for sterling, however, is that officials become alarmed about the pace of job losses and soften their expectations for growth this year. Last week’s data suggested that the outlook has deteriorated quite quickly. The vote split will be an important signal as always, with a 7-2 majority expected for the hold.

EUR

The euro is at the mercy of geopolitical risks and foreign central bank decisions this week. It is back below 1.15 this morning, and the next big eurozone driver comes on Monday with the June PMIs. A rebound today might depend on de-escalation in the Middle East and a cooling in the oil market, while the GBP and CHF pairs will be dominated by the central banks. The Swiss National Bank has cut by 25bps already this morning, taking rates down to 0% and reaffirming its stance that it would intervene in FX if it deemed it necessary. Some had expected a 50bp cut, but policymakers seem to prefer keeping that possibility in the bank. The Norges Bank is anticipated to hold again this morning, meanwhile, as sticky inflation has pushed back the beginning of its easing cycle.

Markets

The disappointing run for stocks extended through yesterday as the chances of US military intervention in the Middle East grew further. US equities ended about flat, while European indexes sank across the continent.

Main Economic Events (All Times CET)

3:30am: Australia Employment Change
9:30am: Swiss National Bank Rate Decision
10:00am: Norges Bank Rate Decision
1:00pm: Bank of England Rate Decision

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