Week Ahead for FX, Bonds : Focus on Fed Decision, Middle East Tensions

By Dow Jones Newswires Staff

Below are the most important global events likely to affect FX and bond markets in the week starting June 16.

An announcement by the U.S. Federal Reserve will be the focus of the week, where interest rates are expected to be left on hold but investors will watch for any signals on the timing of future rate cuts.

Markets will keep a close eye on developments in the Middle East after Israel's strikes on Iranian nuclear facilities caused sharp falls in equities and a jump in oil prices. Further oil-price rises might prevent many central banks from reducing interest rates.

A number of other central bank decisions are scheduled during the week, including in Japan, China the U.K. and Switzerland.

U.S.

The Federal Reserve is expected to keep interest rates on hold at their current 4.25%-4.50% range in a decision on Wednesday.

Focus will center on any signals on when the central bank could cut interest rates. Recent weaker-then-expected consumer and producer price inflation prompted many in the market to bring forward their expectations for the next rate cut. Money markets fully price in a rate cut in October, with a high chance of this being as early as September, LSEG data show. Previously, markets hadn't fully priced in a rate reduction until December.

Analysts at Citi said markets are underpricing the risk of interest-rate cuts. They pointed to slowing core inflation as well as rising continuing jobless claims which suggest that the labor market is loosening.

However, investors are mindful that U.S. tariffs will likely add to inflation as well as weighing on growth. This could delay rate cuts, especially if tensions between Israel and Iran escalate, causing oil prices to rise further.

"The Fed is unlikely to ease monetary policy during the peak of inflation," said analysts at Allianz Research.

Economic data in the coming week include U.S. retail sales and industrial production for May on Tuesday, followed by May housing starts and weekly jobless claims on Wednesday.

Demand at U.S. Treasury auctions will remain a focus for bond investors.

The Treasury will auction $13 billion in 20-year bonds on Monday and $23 billion in five-year Treasury Inflation-Protected Securities on Tuesday.

Latin America

Brazil's central bank announces a decision on Wednesday. It is expected to leave the Selic rate at 14.75%, although analysts see a chance that it could opt for another 25 basis-point hike to 15.00%.

Eurozone

The upcoming eurozone data calendar is light, leaving the focus on the Eurogroup meeting of eurozone finance ministers on Thursday and Friday.

Italy's second-estimate inflation data for May are scheduled for Monday, followed by Germany's ZEW economic sentiment index for June on Tuesday. Eurozone second-estimate harmonized inflation data for May are scheduled for Wednesday.

German producer price data for May are due on Friday.

Germany will conduct an auction for 2029- and 2033-dated green bonds on Tuesday and for 2046- and 2054-dated Bunds on Wednesday. Other issuers include Slovakia on Monday and Spain and France on Thursday.

U.K.

Focus will center on a Bank of England decision on Thursday. The BOE is widely expected to leave its key interest rate on hold at 4.25%.

Investors will scrutinize the vote breakdown and any commentary on when rates might fall again. The BOE has pointed to a gradual, quarterly pace of reductions recently due to elevated levels of inflation. Most analysts expect it to stick to that guidance for now.

However, recent data have pointed to a weak economy, with data showing that the economy contracted by 0.3% in April while unemployment picked up. This could worry BOE policymakers and investors have increased rate-cut expectations accordingly. Money markets fully price in another rate reduction in September, with a sizeable risk of an earlier cut in August, followed by one more rate cut by the end of the year and another in early 2026.

The uncertain outlook means particular attention will be paid to U.K. inflation data for May due on Wednesday, ahead of the BOE's decision.

Annual inflation rose to 3.5% in April and is expected to remain high for now. Investec expects the rate to drop to 3.3%, particularly after the Office for National Statistics admitted that it overestimated the impact from a rise in vehicle excise duty. If Investec's estimate is correct, this could ease the BOE's concerns about inflation over the summer and pave the way for an interest-rate cut in August, economist Philip Shaw said in a note.

Other data include the GfK's consumer confidence index for June plus retail sales and public finances data on Friday.

The U.K.'s Debt Management Office is due to sell gilts maturing in 2030 on Tuesday.

Scandinavia

Interest-rate decisions are due from Sweden's Riksbank on Wednesday and from Norway's Norges Bank on Thursday.

Analysts are divided as to whether the Riksbank will leave interest rates on hold at 2.25% or whether it will opt for a 25 basis-point reduction to 2.0% in an attempt to shield Sweden's economy from the impact of U.S. tariffs. Money markets price in around a 60% chance of a rate cut, LSEG data show.

Analysts at Nordea have recently changed their view and now forecast a rate cut from the Riksbank, having previously expected unchanged rates. Recent economic growth and inflation data have been lower than it expected, Nordea said in a note.

Norges Bank is expected to leave its policy rate unchanged at 4.5%, with rate cuts not expected until later in the year.

With the economy growing at a decent pace and the labor market still tight, the central bank will probably cut rates quite gradually in the second half of the year, said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, in a note.

Swedish May unemployment data are due Tuesday.

Denmark will hold a bond auction on Wednesday.

Switzerland

The Swiss National Bank is expected to cut interest rates in a decision on Thursday, with the potential that it could opt to take rates back into negative territory due to recent weak inflation data and a strong Swiss franc.

Most expect the SNB to reduce rates by 25 basis points to zero percent. However, there is a risk of it opting for a bigger half-point reduction, taking rates to -0.25%. Money markets show around a 25% chance of this outcome, LSEG data show.

"While the SNB would prefer to avoid deeper cuts, a 50 basis-point reduction in June cannot be ruled out," ING analyst Charlotte de Montpellier said in a note.

Turkey

Turkey's central bank is due to announce a rate decision on Thursday.

Japan

The Bank of Japan is widely expected to keep its policy rate steady at 0.5% at its two-day meeting ending Tuesday. Markets will watch for any changes to the pace of its Japanese government bond purchases reductions.

Under its current plan, the BOJ is cutting its JGB purchases by 400 billion yen per quarter through March 2026. Governor Kazuo Ueda has said yields should be set by markets, following the end of yield curve control.

JPMorgan expects the BOJ to maintain this pace until March 2026, then slow reductions to 200 billion yen per quarter, trimming monthly purchases to about 2.1 trillion yen by March 2027 before halting further cuts.

Inflation data due Friday is likely to show a pick-up, driven by the end of energy subsidies and rising food prices. Core CPI excluding fresh food is expected to rise 3.6% in May from a year earlier, up from 3.5% in April, according to a Quick poll.

Trade data for May and April machinery orders will be released Wednesday. Exports are expected to weaken amid higher U.S. tariffs.

The BOJ is set to buy JGBs on Friday with maturities of 1 to 3, 5 to 10, and 10 to 25 years. The planned purchases are likely to support the domestic bond market. On Thursday, the finance ministry will auction about 2.4 trillion yen in five-year sovereign notes, with investors watching for signs of demand.

China

A data-heavy Monday lies ahead, with May house prices and activity indicators offering a mid-quarter health check on China's economy.

Economists polled The Wall Street Journal expect growth to have softened in May as U.S. trade tensions persisted. Industrial output growth likely slowed slightly to 5.9% from April's 6.1%, while retail sales--a gauge of consumption--likely dipped to 4.9% from 5.1%. Fixed-asset investment is expected to have grown 4.0% over January-May, matching the pace seen in the first four months of the year.

Goldman Sachs economists say May data so far has been mixed, citing weak inflation and underwhelming exports. They expect below-consensus industrial output but stronger-than-expected retail sales.

ING sees indicators holding broadly steady, though with a tilt toward moderation as tariff impacts deepen.

After April's modest housing price rebound on the back of policy support, markets will watch May data for further signs of stabilization in the troubled sector.

On Friday, attention will turn to the announcement of a key lending rate. Following a cut in May, the People's Bank of China is widely expected to announce that the loan prime rate - the benchmark for many household, corporate and property loans - remains steady.

Australia/New Zealand

New Zealand's first-quarter GDP data, due Thursday, will be closely watched for signs of a sustained recovery.

The economy returned to growth in the prior quarter, exiting a period of recession, helped by aggressive interest-rate cuts, but the outlook remains uncertain.

Capital Economics said partial activity indicators suggest a solid first-quarter growth, but warns it is too early to claim that it is out of the woods. Private consumption seems likely to fall sharply this quarter, and migration is unlikely to lift domestic demand.

"All told, we believe the case for the RBNZ to inject further policy stimulus remains intact," CE said.

Philippines

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06-15-25 1714ET