The USD eased, oil prices weakened, equity markets are up, and US yields are mixed ahead of the Fed decision and the ongoing Israel-Iran conflict. The USD index remains under pressure, falling 9% in 2025, its steepest first-half-year fall since 1986. The USD is muted in early trading as investors continue to monitor the Iran/Israel conflict and await the Fed interest rate decision. Thursday saw the US Retail Sales fall by the most in two years as Trump tariffs distorted spending in the US. Global equity markets and US futures posted slight gains, with investors cautious heading into the Federal Reserve's monetary policy decision and the release of new forecasts for the economy. "While the economic projections and dot plot could shift market expectations, rising geopolitical and trade uncertainties mean the Fed's growth and inflation forecast may lack precision," noted Ipek Ozkardeskaya, senior analyst at Swissquote. "The Fed will likely reiterate that policy is in a good place and that further decisions will be data-dependent." Elsewhere, oil weakens from near 5-month highs as markets weigh the chance of supply disruptions in the Middle East. Today's primary focus will be on the Fed's interest rate, the FOMC economic projections and the FOMC press conference. Also on the economic agenda that could affect FX markets are the BoC Governor Macklem's speech, US Building Permits, Initial Jobless Claims, and a series of ECB policymakers' speeches.
In the news. Israel launches new attack on Iran's nuclear programme. China's central bank chief expects a new currency order to challenge the dollar. Trump warns Tehran that US patience is wearing thin. UK inflation slows, but oil price jump creates new problem for the Bank of England. UAE says navigation error caused oil tanker collision near the Strait of Hormuz. HS2 rail line faces more delays and cost overruns, government to admit. Carney guided the G7 through the 'diplomatic Rockies,' says expert. Legislation to implement open banking moving forward at 'earliest opportunity." Stock futures tick higher ahead of the Fed's rate decision.
In currency markets. Investors continue to trade cautiously as the escalating Iran/Israel conflict continues for a sixth day, and uncertainty ahead of the Fed's monetary policy decision later today to hold off fresh currency bets. The USD continues under pressure, while EUR, GBP, JPY, and MXN advance in early trading. CNY is flat, while Asian currencies firmed by 0.1% on average against the USD. Trading currencies are mixed, with ZAR weakening 0.5%, SEK falling 0.3%, NOK down 0.15%, CHF flat, NZD, DKK, PLN & CZK up 0.2%, and AUD, JPY & MXN strengthening 0.3% against the USD.
CAD edges higher in early trading amid a softer USD ahead of the Federal Reserve's interest rate decision and the FOMC economic forecast. Domestically, Tuesday saw Canadian home sales fall 0.6% in May against April, and are down 5.9% annually according to the CREA. Today, the focus will be on BoC Governor Tiff Macklem, who will speak in St. John's, Newfoundland, where he will also take questions from the Media, with investors focused on any rate signals ahead of the bank's rate decision in July. "The next two inflation prints are going to be key for the July policy decision, as there's little doubt we'll see softening economic data over the coming weeks." Benjamin Reitzes at BMO. "If inflation slows broadly in May and June prints, and the economy slows, the summary deliberations tell us a July rate cut is very much on the table."
EURCAD holds steady ahead of the Fed's rate decision and BoC Macklem's speech.
EUR holds steady following EU inflation reports and is cautious ahead of the Fed's interest rate decision. The euro firms, retesting 1.1500 in early trading, year to date, the euro continues to be the best G10 performer against the USD, up 11% in the first half of the year. Domestically, the EU Core Harmonized Index of Consumer Prices yoy held steady at 2.3%, with month-over-month levels holding flat. Today, there is a flurry of ECB policymakers speaking, with markets anticipating that they will continue their "data-dependent" rhetoric for interest rate direction. The market's key focus will be the Fed's rate decision and economic projections, which will help direct the euro today.
GBPEUR is consolidating near multi-week lows as a series of weak UK data continues to undermine confidence in the pound.
GBP continues under pressure, capped at 1.3450 ahead of the US interest rate decision. Today, the UK core consumer price index yoy May dropped slightly from the forecasted 3.6% to 3.5%, and the UK Retail Price Index m/m in May fell to 0.2% versus 1.7% in April. The Bank of England is expected to keep interest rates on hold at its meeting tomorrow at 4.25%. However, increased concerns around the labour market, amongst other economic concerns, are expected to cause the BoE to take a more dovish stance on future rate cuts.
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