The week of June 16–20 could be pivotal for global markets as central banks take center stage. In the U.S., the Federal Reserve is expected to hold rates steady, but all eyes will be on Powell’s tone and the updated dot plot for clues on future cuts. In Europe, the Bank of England may strike a more cautious note after weak UK data, while the Swiss National Bank could surprise with a return to negative rates amid deflationary pressures. In Asia, the Bank of Japan is likely to keep rates on hold, potentially delaying its next hike until 2026. With inflation data and rate expectations in flux, markets face a week of key turning points.
Key Points to Watch Out For
- Fed officials will keep their stance on hold while waiting for more details.
- A moderate stance from the Bank of Japan may push back rate hike plans until 2026.
- Deflation is sparking speculation over negative rates from the Swiss National Bank.
- The Bank of England could take a more cautious approach after disappointing UK data.
Fed Expected to Hold – Eyes on the Dot Plot
Risk sentiment remained stable during the first part of last week as the U.S. and China agreed on a framework for implementing the Geneva agreement. Optimism about easing trade tensions pushed the S&P 500 and Nasdaq to levels near their all-time highs.
However, the U.S. dollar failed to gain ground, likely due to investor caution ahead of the CPI data and waning confidence in the currency. Better-than-expected inflation data triggered a further decline in the dollar, accelerated by President Trump’s announcement that letters outlining the new trade terms would be sent to foreign leaders within one or two weeks.
Risk assets sold off further after Israel launched strikes on Iranian nuclear facilities, prompting retaliation in the form of more than 100 Iranian drones.
The rise in geopolitical tensions caused oil prices and safe-haven assets to spike, highlighting investor concerns about a possible escalation. Against this backdrop, all eyes are now on the Fed’s upcoming meeting. Before the CPI release, markets were pricing in rate cuts of around 42 basis points by year-end, slightly more restrictive than the Fed’s own guidance. However, following the data, expectations returned to 55 basis points.
No change in rates is expected on Wednesday, so attention will focus on the statement, Powell’s press conference, and the updated economic projections—especially the new dot plot. Despite the downside surprise in May inflation, the headline rate rose to 2.4% year-on-year (from 2.3%), and core inflation remained steady at 2.8%, both above the Fed’s 2% target. This could justify a patient approach.
What remains uncertain is whether the Fed will continue to signal two cuts this year or reduce the projection to just one. Federal fund futures now show a 95% probability of a cut in September, followed by another in December. If the dot plot shows only one cut, the dollar could rebound strongly. Even two planned cuts could boost the dollar, provided Powell is aggressive enough to dampen expectations of a September hike. To keep the dollar under pressure, the Fed would have to convince markets that the next cut could come even sooner.
BoJ: Pushing the Hike Horizon Further?
Before the Fed, the Bank of Japan will announce its monetary policy decision early on Tuesday, June 17. In May, the Bank of Japan kept rates unchanged and lowered its growth and inflation forecasts. Governor Ueda cited global trade uncertainties as a key risk and noted that the timing of any rate hike would depend on how the situation evolves.
While persistent inflation led markets to price in more than a 50% chance of a 25 basis point hike, recent comments from Ueda and a former policymaker—who said Trump’s tariffs could have ended the tightening cycle—have raised doubts.
The Bank of Japan is expected to keep rates on hold, but its guidance will be crucial. If policymakers emphasize a cautious approach and suggest that there is no rush to tighten monetary policy, markets could delay expectations for the next rate hike until early 2026, which could weigh on the yen.
Japan’s national CPI for May will be released on Friday, June 20.
SNB: 25 or 50 Basis Point Cut?
On Thursday, June 19, the Swiss National Bank will announce its decision on interest rates, with a cut already fully priced in. The question is whether it will be 25 or 50 basis points. With the official rate at 0.25%, a 50 basis point cut would return Switzerland to negative rates, making it the first advanced economy to do so.
May’s CPI showed a year-on-year decline of 0.1%—the first deflationary figure since March 2021—driven by falling household and transport costs. This, coupled with weak growth prospects, has led markets to assign a 20% probability to a 50 basis point cut.
A surprise move into negative territory would likely trigger a sharp fall in the franc. Conversely, a 25 basis point cut could offer modest support for the franc.
BoE: More Cuts on the Table After Weak Data
Also on Thursday, June 19, the Bank of England meets after a series of weak data. April GDP contracted by 0.3% month-on-month, its worst result since October 2023, while industrial and manufacturing production also entered negative territory.
Although the Bank of England was cautious at its last meeting due to persistent inflation, the latest figures have raised expectations of further easing. Markets are now pricing 52 basis points of additional cuts this year.
No changes are expected this week after the 25 basis point cut at the previous meeting.
However, if Wednesday’s CPI shows a slowdown, the Bank of England could adopt a more dovish tone, which could put pressure on the pound. Although sterling remains strong against the dollar, that strength reflects dollar weakness more than UK resilience. The relative underperformance of sterling is most evident in the euro/sterling pair.
Conclusion
New Zealand’s Q1 GDP and Australia’s May employment report are also due this week. According to OIS markets, the RBNZ is expected to deliver one final 25 basis point cut, ending its easing cycle. Meanwhile, the RBA is expected to continue tightening, with market pricing in 100 basis points of hikes by mid-2026.
If upcoming data widens this divergence, the AUD/NZD pair may continue its downward trajectory.
