Week Ahead: Central banks meet amid big geopolitical risks
Updated Updated Sun, 2025 June 15 02:07
The next few days will see markets adjust to major geopolitical tensions in the Middle East, whilst also trying to navigate rising trade uncertainty and underwhelming economic data. This week will also see a smorgasbord of major central bank meetings, including the FOMC, the BoJ and the BoE. Policymakers are expected to sit on their hands, especially now with the hot conflict again between Israel and Iran.
Risk‐off sentiment helped the greenback last week, via higher oil prices. That is because the US has turned from a net energy importer to self‐reliance to a net exporter. But the key question is whether this is a longer-term driver. Geopolitical themes tend to have short shelf lives for markets, and it doesn’t offset the bearish bias and other lingering dollar negatives. The traditional dollar correlations have disappeared recently with its safe haven status diminished, and it seems it’s only the short-term shock to stocks and bonds that initially helped USD.
We would expect to see active buying on dips in EUR/USD on any indication of a de-escalation, while the yen remains the most attractive hedge if tensions spiral into a broader conflict and oil prices rise further. That could lead to more upside room for the dollar, which is already oversold and sharply undervalued in the near term. Much will depend on any restraint in retaliation by Iran, whether the US gets dragged into the conflict, and in the worst-case, if the Strait of Hormuz is affected.
The Fed policy meeting takes centre stage on Wednesday. Rates will remain unchanged, despite pressure from the White House. There is growing speculation in markets that Trump could soon nominate Fed Powell’s successor. The idea is that acting as a shadow chair, he/she could then already start talking markets towards lower rates before taking up the role in May next year. Fresh dot plots will grab the headlines this week, with very little forward guidance expected from Powell. Inflation has been making decent progress towards the 2% target with a cooling in some economic data. But tariffs and a spike in energy prices could lead to a mini-CPI resurgence. That could delay the Fed’s abilities to cut rates until potentially the final meeting of the year.
In Brief: major data releases of the week
Monday, 16 June 2025
– China Data: Hard activity data on retail sales, industrial production, and fixed asset investment are expected to remain broadly stable with a bias toward softer figures. The impact from the prior peak-tariff period continues to feed through to the economy, though the chances of trade agreement probably alleviate downside risks.
Tuesday, 17 June 2025
– Bank of Japan Meeting: The BoJ is expected to keep its policy rate steady at 0.5%. Focus will be on any guidance from Governor Ueda regarding the future policy path. Markets will also keenly watch to see if the bank alters its purchase pace of JGBs, with speculation this could be reduced. USD/JPY has been trading around its 50-day SMA at 144.11. This has capped the upside on a few occasions this year.
– US Retail Sales: Consensus forecast sales to remain at 0.1% though auto sales may drag as they were sharply lower in May. The ex-autos measure is expected to contract by 0.3%, down from the prior 0.1%.
Wednesday, 18 June 2025
– UK CPI: Analysts forecast the headline rate to ease back from 3.5% after jumping in April due to Easter’s timing and an ONS overestimation in road tax. The latter should bring down services inflation heavily, from a likely peak of 5.4%.
– FOMC Meeting: Markets fully predict the Fed will keep its target range at 4.25-4.50%. Policymakers remain in wait-and-see mode as they study how their dual mandate fares amid trade uncertainty. Markets will watch the updated economic projections and the “dot plot”, with 50bps of rate cuts seen in 2025 and 2026, in the most recent March forecasts.
Thursday, 19 June 2025
– Australia Jobs: Consensus expects 20k jobs to be added, less than the prior 89k. Three out of four months so far this year have been strong with net job gains of over 114k. The jobless rate is forecast to stay unchanged at 4.1%. AUD/USD has struggled to break above 0.6549, a major Fib retracement level (61.8%) of the September-April decline. Support sits at the midpoint of that move and the 20-day SMA at 0.6427/32.
– Bank of England Meeting: No policy changes are expected with a quarterly pace of rate cuts set to remain the bank’s preferred strategy. A gradual and careful approach to rate changes should continue, though the MPC vote will be split. Cable broke to fresh cycle highs last week, but sterling’s domestic drivers are mostly rather negative.
Friday, 20 June 2025
– Japan CPI: May nationwide inflation is expected to print at 3.5%, driven by broad-based service price gains. Tokyo CPI has been hot in recent months though markets currently show minimal pricing for a BoJ rate hike through this year.
