Markets in the Grip of Central Banks and Inflation

Global Economic Review – Week Ending June 14, 2025

Last week’s data painted a mixed global picture. In the United States, May inflation surprised to the downside: both headline and core CPI rose just 0.1%, while core goods prices—where tariffs bite hardest—fell 0.04%. PPI gains remained modest, and sentiment indicators (NFIB Optimism at 98.8, Michigan Sentiment at 60.5) edged higher. With inflation in line with the Fed’s 2% core‐PCE goal, rate hikes are unlikely at the next meeting.

In the United Kingdom, April GDP contracted 0.3%, driven by declines in industry (−0.6%), manufacturing (−0.9%), and services (−0.4%). Wage growth also decelerated (average earnings at 5.3%, excluding bonuses down), reinforcing expectations that the Bank of England may soon ease the policy.

Across Europe & Scandinavia, Norway’s headline CPI reached 3.0%, and core inflation settled at 2.8%, both above Norges Bank’s 2% target. Markets still price in a 25 bp cut in Q3 to 4.25%, given persistent volatility.

Latin America continues to diverge:

• Mexico: May inflation climbed to 4.42% (core 4.06%), above Banxico’s 3% ±1% goal. With a projected –0.4% GDP in 2025, analysts expect a 50 bp cut to 8.00% this month and 7.50% by Q3.
• Brazil: CPI fell to 5.32% YoY, yet fiscal risks and inflation above the 4.5% tolerance suggest a 25 bp Selic hike to 15.00%.
• Colombia: Inflation eased more than forecast, supporting a 25 bp rate cut to 9.00% in late June.

Key Takeaways

• Moderating inflation in the U.S. and much of Latin America has eased immediate central‐bank pressures.
• Growth headwinds in the U.K. and Mexico point to sluggish Q2 performances.
• Policy divergence persists developed markets hold or ease rates, while Brazil tightens further.

As tariff effects and global demand evolve, the weeks ahead will determine whether inflation remains contained or resumes its ascent.

U.S. Economic Outlook – Week 25, 2025

As we enter Week 25 of 2025, recent data paint a picture of modest growth: consumers are growing cautious, factories lack momentum, and homebuilding faces headwinds. Despite controlled inflation, these trends underscore a subdued expansion.

Consumer Spending

April retail sales edged up 0.1%, slightly above forecasts but offering limited comfort. The “control group” (core spending) fell 0.2%, revealing consumer fatigue after a pre-tariff surge in March. A 90-day tariff truce with China has eased pressures, yet a lingering 30% tariff keeps uncertainty high. Looking ahead, May sales are projected to decline 0.5% overall, driven by weaker auto purchases—while non-auto sales may still climb 0.2%, suggesting discretionary spending is slowing but not collapsing.

Industrial Production

Overall industrial output was flat in April but manufacturing contracted 0.4%, its sharpest decline in seven months. Motor vehicle and parts production fell 1.9%, and electronics output dropped 0.7%, both sensitive to supply-chain strains and tariff worries. With the ISM production index at 45.4 in May (below the 50 breakeven), there’s little sign of a rebound. May’s output is expected to remain unchanged, and capacity utilization should hover around 77.7%, reflecting a stagnant sector.

Housing Activity

Housing starts rose 1.6% in April, buoyed by a 10.7% jump in multifamily construction, while single-family starts slid 2.1%. Year-to-date starts remain 1.6% below last year, signaling broad deceleration. Permits—a forward-looking indicator—fell 4.7%, and builder sentiment dropped to 34 in May. With mortgage rates near 7%, affordability challenges persist. May starts are forecast to hold at a 1.364 million annualized pace.

Policy Outlook

With inflation easing and growth cooling, the Federal Reserve is expected to hold rates steady at its next meeting, maintaining a data-driven posture. Tariff developments and geopolitical risks remain chief downside threats. Should consumer confidence erode further and investment stall, growth may slip below trend in H2 2025, heightening pressure on the Fed to reconsider its stance.

FOMC Meeting Preview (June 17–18, 2025)

Markets overwhelmingly expect the Fed to keep rates at 4.25–4.50%, with CME FedWatch assigning a 99.6% probability of no change and 103 of 105 economists in Reuters’ poll forecasting a pause. The dot plot is likely to remain unchanged, signaling two 25 bp cuts later this year. Any surprise would come via hawkish or dovish tweaks in the statement or projections—such as shifts on tariffs or geopolitical risks—but a June hike or early cut is almost universally discounted, with most analysts eyeing the first reduction in September.

Key Themes:

• Inflation: Core PCE, at ~2.5%, stays above the 2% target. Officials will describe inflation as “somewhat elevated,” warn of tariff-driven upside risks, and flag potential price pressures if trade tensions flare.
• Labor Market: With unemployment at 4.2%, job growth remains solid but shows early signs of cooling. Projections may nudge year-end unemployment to ~4.5%.
• Growth Outlook: GDP growth is forecast at ~1.4% for 2025, with Q4 estimates likely trimmed to 1.2% YoY. Headwinds include tariffs, trade uncertainty, and tighter fiscal policy.
• Fed Stance: Chair Powell will emphasize “cautious patience,” maintaining a data-dependent, wait-and-see approach.

Projections: The SEP is expected to reaffirm two cuts in 2025, with the long-run neutral rate and median dot around 3.0%. Markets will scrutinize any subtle language changes for clues on future easing.

Wall Street and USD

With the Federal Reserve’s June hold all but certain, both U.S. equities and currency markets are positioned to react more to fundamentals and sentiment than to policy surprises.

U.S. Equities

May’s rally was broad-based—the S&P 500 surged, with 10 of 11 sectors advancing (only healthcare lagged). Tech and growth names led the charge: the “Magnificent 7” rallied about 13.5% last month and should remain supported so long as rates stay stable or head lower; any dovish Fed hints would likely amplify gains in tech and consumer discretionary stocks. In contrast, defensive and value sectors (healthcare, utilities, staples) tend to underperform in risk-on environments, as seen by a 5.6% drop in healthcare. Financials are more nuanced: they benefit from a wider yield curve if rates stay elevated but would suffer if easing signals flatten the curve and narrow margins. Overall investor sentiment is cautiously optimistic: the S&P 500 sits near all-time highs, yet strategists warn the rally is vulnerable to any hawkish surprise.

Technically, support is near 5,800 and resistance around 6,000, suggesting limited upside without further stimulus.

USD and FX

Currency markets have largely priced in future Fed cuts, leaving the dollar on the back foot. The DXY recently dipped below 98—a multi-year low—as softer U.S. inflation and labor data bolstered bets on 1–2 quarter-point cuts by year-end.

• Under a neutral Fed hold, the dollar may drift lower absent hawkish cues, with EUR/USD and GBP/USD likely to extend recent gains.
• A dovish surprise (explicit forward guidance on cuts) would weaken the dollar further.
• A hawkish surprise (emphasizing upside inflation risks or geopolitical shocks) could bolster USD, JPY, and CHF as safe havens.

Technical Outlook: On the daily chart, the dollar’s downtrend shows signs of pausing—RSI has bounced off 30, and on-balance volume is rising. The 50-day EMA near 100 is key resistance; a breakout could signal further strength.

Bank of England Meeting Preview & Economic Outlook

The Bank of England meets on June 19, 2025, and the consensus is for a hold at 4.25% following May’s 25 bp cut. In a Reuters poll of 60 economists, every respondent expects no change, with the first 25 bp reduction penciled in for August and a second by year-end. Market instruments (interest-rate swaps) and consensus surveys price a 90–95% chance of a pause in June and imply roughly 50 bp of easing by year-end.

Major Bank Forecasts:

• UBS foresees a 7–2 vote to hold (only Dhingra and Taylor dissenting) and expects two more 25 bp cuts—in August and November—bringing the rate to 3.75% by end-2025.
• Bank of America also projects a 7–2 split with no change.
• Goldman Sachs anticipates steady, quarterly rate cuts.

Although June’s pause is all but certain, slower growth and rising unemployment raise the odds of future easing. Barclays calls June’s decision a “foregone conclusion,” shifting market focus to guidance ahead of August.

Key Economic Guidance

• Inflation: April CPI was 3.4%, with May expected near 3.3%. Core and services inflation remain elevated (services at 5.4% in April) but show signs of peaking. The Bank’s May forecasts project CPI peaking around 3.5% in Q3 2025 before easing toward 2% by 2026. The MPC is likely to emphasize that, while headline inflation is easing, underlying price pressures—especially from housing, utilities, and services—remain sticky.
• Labour Market: Unemployment has risen to 4.6% (its highest since 2021). Payrolls fell by about 109,000 in May, and vacancies continue to decline. Wage growth has cooled to 5.0–5.2% YoY, down from around 7% in 2023. MPC members are expected to note this labour-market softening but may defer further cuts until wage pressures moderate more clearly.
• GDP Outlook: Q1 2025 output grew 0.7% annualized before falling 0.3% in April—the largest single-month drop since 2023. Trade shocks and fiscal tightening remain drag factors. The Bank’s forecasts envisage only 1% GDP growth in 2025. The MPC will likely highlight this subdued outlook and signal that policy must stay accommodative to support the economy.

Market Impact

Sterling (GBP):

With the Bank of England poised to hold rates—or hint at future cuts—sterling faces downward pressure. Analysts widely expect a muted immediate reaction but warn that “elevated uncertainty” and further easing will weigh on the pound. Danske Bank projects EUR/GBP rising toward 0.87 over the next 6–12 months, while IG cautions that any surprise dovish guidance would “significantly weaken” GBP. Indeed, GBP/USD has traded lower this week on softer U.K. data. In the short term, we anticipate GBP/USD to trade between $1.34 and $1.37, with a neutral decision plus dovish signals likely to cause sterling to underperform other major currencies.

UK Equities:

U.K. stocks have remained resilient, propelled by strong Q1 earnings and easing trade tensions, which sent the FTSE 100 to record highs. Investor sentiment is cautiously optimistic: a dovish tilt in BoE guidance should further lift domestic, rate-sensitive sectors (housing, small caps), while a hawkish tone could temper gains. Sector by sector, financials may tread water if rates plateau but face margin pressure under a dovish shift; utilities and defensives stand to rebound; tech and growth could lag if U.S. Fed policy dominates. Overall, a dovish hold will likely reinforce recent rotations into cyclical, domestically focused stocks.

Technical Outlook:

GBP/USD remains in a bullish trend, supported by an RSI above 55 and rising on-balance volume, indicating persistent demand for the pound.

Gold Market Outlook

This week’s Fed meeting (June 17–18) is the dominant driver for gold. Markets expect the Fed to hold rates steady, maintaining a “wait-and-see” stance amid lingering trade and tariff pressures. This neutral-to-mildly hawkish bias is a headwind for bullion.

U.S. Inflation & Rate Expectations

May’s CPI rose just 0.1% month-over-month (versus 0.2% forecast), slowing year-over-year inflation into the low-2% range. Cooler inflation has lifted odds of Fed cuts later in 2025—traders now assign over 60% probability to a September cut. Soft inflation tends to lower real yields, which supports gold; a resumption of price pressures, however, could push Treasury yields higher and weigh on bullion.

Dollar Dynamics

The U.S. dollar has weakened sharply this year, with the DXY down roughly 9% YTD and trading near three-year lows (~98.6). A softer dollar makes gold cheaper in other currencies, boosting demand. Yet strategists warn the dollar remains modestly “overvalued” and that large fiscal deficits could cap further declines. Hawkish Fed signals or a dollar rebound could limit gold’s upside, while renewed dollar weakness would propel gold higher.

Treasury Yields

The 10-year Treasury yield hovers near 4.4%, up from around 2% a year ago, and TIPS-implied real yields sit near 2.1%. Gold typically moves inversely to real yields—if real rates stabilize or decline as Fed cuts loom, gold should benefit; any surprise yield spike (from hawkish rhetoric or resilient growth) would pressure the metal.

Geopolitical Safe Havens

Recent Middle East tensions have reinforced gold’s safe-haven appeal. Israeli airstrikes on Iran drove gold 1–4% higher on June 12–13, lifting XAU/USD to around $3,433, a weekly gain of about 3.7%. Any escalation in global conflicts or trade skirmishes tends to spur gold buying, while easing risks can trigger profit-taking.

Technical Outlook

XAU/USD has cleared $3,400 and now faces resistance at $3,430–$3,450, with the all-time high near $3,500. Initial support lies at $3,380–$3,360, with deeper support near $3,300. Momentum indicators—RSI near 62 and elevated MACD—signal overbought conditions, suggesting possible consolidation. Nonetheless, the uptrend remains intact, with the 50-day moving average sloping upward. A decisive breakout above $3,450–$3,500 could open the door to new highs, while hawkish data or a dollar rebound could pull gold back toward support.

Brent & WTI Oil Outlook – Week 25, 2025 (≈300 words)

OPEC+ has steadily rolled back cuts, adding back 411 kbpd in May, June, and July—totaling ~1.37 mbpd since April. Saudi Arabia and Russia now prioritize market share over price support, with only Saudi/UAE spare capacity (about 3–3.5 mbpd) serving as a meaningful buffer. Markets expect OPEC+ to maintain gradual output increases but will watch for compliance shortfalls (notably in Iraq and Kazakhstan) or surprise policy shifts.

Spare Capacity & Inventories:

Outside of OPEC+, only Saudi Arabia and the UAE have enough spare capacity to offset a major supply shock. Global spare capacity roughly equals Iran’s output (~3.3 mbpd), making any disruption in Iranian exports particularly impactful. In the U.S., crude stocks fell 3.6 mb last week (to June 6) versus a 2 mb consensus. Continued draws—especially if confirmed by API/EIA on June 17–18—would underpin prices, whereas builds or easing demand would cap gains.

Geopolitical & Sanctions Risks:

Middle East tensions have fuelled volatility: U.S. evacuations from Baghdad and Iran’s saber-rattling on June 11 drove oil up ~4%, and Israel’s June 13 Natanz strike sent Brent/WTI roughly +7% intraday. Although exports remain intact, Iran’s 3.3 mbpd production and >2 mbpd exports could be threatened if conflict broadens. Traders must monitor any escalation—Houthi attacks, Gulf terminal strikes—or fresh Russia sanctions that could constrain up to 7.6 mbpd of exports.

Demand Signals:

U.S. fuel fundamentals show seasonal strength: last week’s significant crude draw and higher refinery runs point to tightening. Gasoline demand climbed to 9.17 mbpd amid early summer travel. Conversely, China’s Caixin PMI fell to 48.3, signaling softer demand growth. The IEA has trimmed its 2025 global demand forecast to 0.74 mbpd, though any U.S.–China trade truce could offer a temporary boost.

Technical Outlook (WTI):

Last week’s rally pushed WTI toward $74–$74.5 and WTI to resistance near $72.7, with next targets around $77–$78. Near-term support lies at $69.8, with deeper floors near $64. The RSI (~75) and rising OBV indicate strong bullish momentum but also overbought conditions, suggesting possible consolidation before a break above $74 solidifies a path to new highs. Conversely, a drop below $70 risks testing lower pivots.

Bitcoin (BTC/USD) Outlook

The Federal Reserve’s June 17–18 decision is the primary catalyst for Bitcoin this week. Markets are nearly certain the Fed will pause at 4.25–4.50%, with futures pushing the first cut out to September or later. May’s U.S. CPI came in softer than expected—0.1% month-over-month (vs. 0.2% forecast) and 2.4% year-over-year (vs. 2.5% expected)—underscoring ongoing but slowing inflation.

A steady or mildly dovish Fed typically weakens the U.S. dollar, which benefits Bitcoin by making it relatively cheaper for international buyers. Conversely, any unexpectedly hawkish signal from the Fed—such as a firmer inflation outlook—could trigger a modest BTC pullback.

Dollar Weakness & Macro Tailwinds

As inflation cooled and rate-cut expectations rose, the DXY index slid to multi-year lows around 97.8 in mid-June—its weakest level since early 2022. This dollar softness is a positive macro tailwind for dollar-priced assets like Bitcoin. Historical data show BTC often rallies when the dollar declines.

Global Liquidity

Analysts note an 84% correlation between Bitcoin prices and global M2 money supply. With the Fed, ECB, and BoJ signaling eventual easing, global liquidity is expanding. A recent Bitwise report links dollar weakness to rising money supply, “boding well” for Bitcoin. Some projections even suggest BTC could retest its all-time high (~$112 K) by June 2025 if liquidity remains abundant.

Investor Sentiment & Technical

Sentiment is mixed: geopolitical tensions and trade uncertainty keep some investors cautious, but most indicators (e.g., the Crypto Fear & Greed Index) lean neutral-to-slightly optimistic, with a bias toward “risk-on” if the Fed confirms future easing.

Technically, Bitcoin’s RSI is declining toward 50, indicating waning momentum. A break below the 100-day moving average would likely exert additional downward pressure, potentially testing the 200-day MA near $88 K. Traders should monitor these levels for signs of trend exhaustion or reversal.