As we head into the weekend, markets are showing a calmer tone, influenced by shifting geopolitical signals and recent central bank decisions.

Geopolitical Outlook:

• Reduced Tension: The US Dollar and oil prices have edged lower. This comes as reports suggest President Trump will decide within the next two weeks whether the US will directly join the Israel-Iran conflict, a timeline that offers some breathing room for markets.
• Diplomatic Efforts: European foreign ministers are set to hold nuclear talks with Iran in Geneva, indicating ongoing diplomatic efforts to de-escalate the situation.
• Bank of England (BoE) Holds Rates: As expected, the BoE kept its interest rates steady at 4.25%. They acknowledged a cooling in the labor market, which aligns with expectations that their next rate cut could come in August.
• Swiss National Bank (SNB) Cuts Rates: The SNB surprised some by cutting its key interest rate by 25 basis points to 0.0%. Interestingly, despite the cut, they struck a somewhat "hawkish" tone, suggesting continued vigilance.

In summary...

Markets are finding some calm as the immediate intensity of geopolitical fears subsides, while central bank actions from the BoE and SNB are providing clearer signals on monetary policy paths.

Today’s Market Update:

Markets opened with a degree of caution today, driven by a mix of persistent geopolitical concerns and new economic data.

Heightened Geopolitical Risk:

• Reports emerged overnight that the White House will decide within two weeks whether the US will join Israel in its strikes against Iran, as satellite images show Tehran is racing to get its oil out and filling storage tanks.
• This news has prompted a "risk-off" move in global equities, while the US Dollar has seen some gains as a safe-haven asset, alongside a rise in oil prices.

UK Economic Signals Weigh on Pound:

• May's UK retail sales dropped faster than expected, indicating that consumer spending remains subdued. This weaker data points to a modest Q2 GDP growth forecast of around 0.1%.
• The Pound is marginally weaker this morning following this disappointing retail sales report, despite the BoE's subtle "dovish tilt" yesterday (where three members voted for a cut, and they acknowledged labour market slack).

Federal Reserve Recap (from earlier in the week):

• The US Federal Reserve held rates steady but notably raised its inflation forecasts, partly due to tariffs.
• While their "dot plot" still hinted at two rate cuts this year, a significant number of officials (7 out of 19) projected no cuts at all, highlighting a divided committee and a cautious approach to future easing. This divergence contributes to the dollar's underlying strength.

In summary...

Today's market tone is primarily shaped by the intensified geopolitical headlines regarding Iran and the softer UK retail sales data, as participants continue to digest recent central bank guidance.

20th June 2025

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