Today at 20:00 (GMT+2), the results of the U.S. Federal Reserve monetary policy meeting will be published. This meeting will be the first under the leadership of the new head of the regulator, Kevin Warsh, and since traders are confident that the interest rate will remain in the target range of 3.50–3.75%, their attention will be focused on the subsequent press conference and updated economic forecasts. Experts are concerned about rising inflationary pressure, but given the increased probability of a near-term peaceful settlement of the Middle East conflict, arguments in favor of shifting to a hawkish course may weaken noticeably. Recall that U.S. President Donald Trump and Vice President JD Vance signed an electronic version of a memorandum of understanding with Iran, which provides for the lifting of the U.S. naval blockade of ports, the opening of the strategically important Strait of Hormuz to shipping, and the start of 60-day negotiations on the Islamic Republic’s nuclear program. Trump added that if no compromise is reached on this issue, U.S. attacks will resume.
Eurozone
The euro is strengthening against the pound but weakening against the U.S. dollar and the yen.
The driver of the euro’s upward dynamics was macroeconomic data from the Centre for European Economic Research (ZEW): the June economic sentiment index in Germany rose from –10.2 points to 10.5 points, entering positive territory for the first time since the beginning of the confrontation in the Persian Gulf and significantly exceeding analysts’ consensus forecast of –6.0 points. The same indicator for the eurozone increased from –9.1 points to 9.5 points against preliminary estimates of –7.2 points. This optimism was offset by the continued negative assessment of the current economic situation in Germany, which declined from –77.8 points to –81.0 points, more than analysts had expected. In turn, in April, the EU trade balance decreased by 4.9 billion euros to –1.0 billion euros, compared with 8.7 billion euros a year earlier, while industrial production fell from 0.4% to 0.1% month-on-month against expectations of 0.2%, indicating that the sector’s recovery remains extremely weak and does not provide fundamental support for the single currency amid the ongoing energy crisis.
United Kingdom
The pound is weakening against the euro, the U.S. dollar, and the yen.
According to macroeconomic data, gross domestic product (GDP) contracted by 0.1% for the first time in eight months, which, against the backdrop of rising living costs and high interest rates, creates serious barriers to the pound’s recovery. At the same time, unlike their European counterparts, the Bank of England is noticeably limited in its ability to tighten monetary policy. Moreover, investors note that an interest rate hike under stagflation conditions will not support the exchange rate but will only help contain the decline, eventually bringing the GBP/USD pair toward 1.3100. For now, all 65 economists surveyed by Reuters expect borrowing costs to remain at 3.75%, although almost 40.0% of respondents forecast at least one increase before the end of the year, reflecting growing inflation risks related to the conflict in the Persian Gulf. Monetary Policy Committee member Megan Greene said last week that she sees increasingly convincing arguments in favor of tightening monetary conditions.
Australia
The Australian dollar is declining against the yen, the U.S. dollar, the euro, and the pound.
Market participants and forex traders are focused on the results of the Reserve Bank of Australia’s monetary policy meeting. Officials kept the interest rate at 4.35%, while emphasizing that after three consecutive increases since the beginning of the year, financial conditions have become tighter. In addition, there are signs of a slowdown in economic momentum, while inflation remains high: in the first quarter, gross domestic product (GDP) fell from 2.6% to 2.5% year-on-year against the forecasted 2.7% and amounted to 0.3% compared with 0.5% quarter-on-quarter. In recent weeks, oil prices have been recovering, although the cost of energy and most related commodities remains higher than before the Middle East conflict, contributing to the transfer of business costs onto consumers. Nevertheless, uncertainty persists: peace initiatives, and in particular the planned signing of the agreement between the United States and Iran on June 19, appear extremely fragile, so monetary authorities point to the priority of scenarios in which inflation will be higher and economic activity lower than assumed in the baseline May forecasts.
Japan
The yen is strengthening against the euro, the pound, and the U.S. dollar.
The Bank of Japan’s decision to raise the interest rate to 1.00% this week was made against the backdrop of a fundamental shift in the geopolitical context. The preliminary peace agreement between the United States and Iran, reached over the weekend, led to a rapid decline in oil prices, improving trade conditions for Japan as a net energy importer. In its statement, the regulator noted that although the agreement is a positive development, economic uncertainty persists, including issues related to the restoration of supply chains. At the same time, it warned of the risk that core inflation may deviate above the 2.0% target, as rising crude oil prices lead to a relatively rapid transfer of costs into business transactions, which may spread to a wide range of consumer goods. In addition, it was announced that until April 2027, the reduction in government bond purchases will continue at the current pace of about 200.0 billion yen per quarter. This decision, aimed at stabilizing the government bond market amid a sharp rise in long-term yields, is perceived by the market as a dovish signal that could further weaken the yen.
Oil
Oil quotes are actively losing value after reports of a framework ceasefire agreement between the United States and Iran.
On Sunday, U.S. President Donald Trump said that a preliminary memorandum on a peaceful settlement of the conflict would be finally signed on Friday in Switzerland. Media reports add that the document includes the cessation of hostilities, the lifting of the U.S. blockade of Iranian ports, and the resumption of tanker passage through the Strait of Hormuz. It is worth noting that Iranian Foreign Ministry spokesperson Esmail Baghaei stated that the date of the final conclusion of the agreement has not yet been determined. Thus, the geopolitical premium that had previously pushed Brent Crude Oil above 100.00 and up to 120.00–130.00 at the peak moments of the crisis is shrinking, and quotes have already reached the 78.00–81.00 range.
