Central Banks in Focus as Markets Digest Hawkish Fed.
Currency markets begin the week processing the primary takeaway from last week's key events: the US Federal Reserve remains in no rush to cut interest rates. A hawkish policy meeting, where the Fed projected only one rate cut for 2025, ultimately overshadowed a softer-than-expected US inflation report and reinforced the US Dollar's strength. This week, the central bank theme continues as the spotlight pivots to the Bank of England and a host of important economic data from the UK, Europe, and the US.
For the Pound Sterling, this week is crucial. After showing some resilience on the back of stubbornly high domestic wage growth, the currency now faces two key domestic tests. The latest UK inflation data on Wednesday will set the stage for Thursday's main event: the Bank of England's interest rate decision. While no change in policy is expected, the vote split and any forward-looking guidance will be scrutinised for clues on the timing of a potential cut later this summer.
The US Dollar remains well-supported by the Fed's "higher for longer" stance. With the central bank's outlook now set, market attention turns to the health of the US consumer and the broader economy. This week's key US data point will be Tuesday's Retail Sales figures, which will offer vital insights into consumer spending activity. This will be followed by flash business activity surveys on Friday, providing a timely economic health check.
The Euro is currently navigating dual headwinds. On one hand, the strong US Dollar is exerting broad pressure. On the other, a degree of political uncertainty in Europe, particularly surrounding the upcoming snap election in France, is also weighing on sentiment. Traders will be watching key sentiment surveys and flash PMI data this week for any signs of economic fallout from the current political climate.
Events to Watch This Week:
Tuesday, June 17: US Retail Sales (May) German ZEW Economic Sentiment (June)
Wednesday, June 18: UK CPI Inflation Report (May) Note: US Markets Closed for Juneteenth Holiday
Thursday, June 19: Bank of England (BoE) Policy Decision
Friday, June 20: Global Flash PMIs (June) for UK, Eurozone, & US UK Retail Sales (May)
The central bank divergence between a patient Fed and other G10 banks remains a core market theme. This week's Bank of England meeting, framed by critical UK inflation and retail sales data, will be a key test for this narrative and a primary driver for the Pound. Meanwhile, US data will determine if the Dollar can maintain its recent momentum.
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