​​​​​​​Market Jitters Rise as Geopolitical Risks and Central Bank Decisions Collide | Weekly Market Analysis

Key events this week:

Tuesday, June 17, 2025

• Japan - BoJ Interest Rate Decision
• USA - Core Retail Sales (MoM) (May)
• USA - Retail Sales (MoM) (May)

Wednesday, June 18, 2025

• UK - CPI (YoY) (May)
• Eurozone - CPI (YoY) (May)
• USA - Initial Jobless Claims
• USA - Crude Oil Inventories
• USA - FOMC Economic Projections
• USA - FOMC Statement
• USA - Fed Interest Rate Decision
• USA - FOMC Press Conference

Thursday, June 19, 2025

• Switzerland - SNB Interest Rate Decision (Q2)
• UK - BoE Interest Rate Decision (Jun)
• USA - Initial Jobless Claims

Friday, June 20, 2025

• USA - Philadelphia Fed Manufacturing Index (Jun)

Global markets ended the week under pressure as escalating Middle East tensions and concerns over global growth rattled investor confidence. On Friday, major US indices closed significantly lower, with the Dow Jones Industrial Average plunging 769 points, or 1.8%, the S&P 500 declining 1.2%, and the NASDAQ Composite shedding 1.3%.

The sharp decline came in response to heightened geopolitical uncertainty after Iran launched a retaliatory strike against Israel, sending oil prices soaring and sparking fears of wider regional instability. This surge in oil prices, driven by worries over supply disruptions, threatened to complicate the inflation outlook at a time when central banks were already grappling with mixed economic signals.

Economic data offered some temporary relief. The University of Michigan’s preliminary consumer sentiment index for June showed improvement, rising to 60.5 from May’s 52.2, suggesting American consumers are regaining confidence despite ongoing economic challenges. Meanwhile, the US Producer Price Index (PPI) for May came in below expectations, mirroring the earlier softer-than-anticipated Consumer Price Index (CPI) reading. These figures pointed to cooling inflationary pressures, at least for now. However, the market’s reaction remained subdued, as traders balanced the encouraging inflation data against mounting trade concerns and the unpredictable geopolitical landscape.

Adding to the tension, former President Donald Trump reignited trade anxieties by hinting at possible auto tariffs and warning that letters outlining planned trade measures would be sent to major US partners in the coming weeks. The looming July 9 deadline to finalize trade agreements added another layer of uncertainty for global investors already wary of a re-escalation in trade disputes, especially between the US and China.

In currency markets, geopolitical risk and soft economic indicators weighed on risk-sensitive assets. The Australian Dollar extended losses against the US Dollar at the start of the new week, pressured by rising Middle East tensions and a mixed economic backdrop from its largest trading partner, China. While Chinese retail sales beat expectations with a 6.4% year-over-year increase in May, industrial production fell slightly short, registering 5.8% growth compared to the forecasted 5.9%. China’s National Bureau of Statistics maintained that the domestic economy remained stable in the first half of 2025 but warned that uncertainty in global trade policy could hamper growth in the months ahead.

The New Zealand Dollar held modest gains early Monday, with the NZD/USD pair trading around 0.6020, buoyed in part by Chinese data. However, the upside was capped by persistent risk aversion. New Zealand's domestic data, meanwhile, painted a gloomy picture, with the Business NZ Performance of Services Index plunging to 44.0 in May - its lowest reading since June 2024 and the fourth consecutive contraction. The deteriorating services sector added pressure on the New Zealand economy, limiting any substantial rally in the kiwi dollar.

Elsewhere in Asia, the Japanese Yen continued to drift lower, with the USD/JPY pair edging toward the 144.75 mark during Monday’s session. Although the yen typically benefits during times of heightened global tension, expectations that the Bank of Japan might not pursue additional rate hikes this year weakened its safe-haven appeal. Reports suggested the BoJ was considering halving its Japanese government bond purchases starting in April 2026 - a move that could represent a shift in its ultra-loose policy stance. The central bank is widely expected to leave its benchmark rate unchanged at 0.5% at this week’s policy meeting. However, signs of slightly stronger-than-expected inflation could open the door to tighter monetary policy later this year, which would be supportive of the yen in the medium term.

In Europe, the EUR/USD pair remained under pressure, slipping for a second consecutive session and trading near 1.1540 amid a stronger US Dollar and rising demand for safe-haven assets. However, some support for the euro could come from growing speculation that the European Central Bank will pause its monetary easing cycle to assess the effects of newly imposed US tariffs. While no major rate moves are expected immediately, the ECB’s stance remains pivotal to the euro’s near-term direction.

The British Pound also struggled to maintain upward momentum, with GBP/USD hovering below a recent three-year high. The pair traded in a tight range as traders exercised caution ahead of several critical data releases and policy decisions. The latest UK GDP numbers revealed a steeper-than-expected contraction of 0.3% in April, increasing the likelihood that the Bank of England may take a more aggressive approach to rate cuts in the coming months. With UK inflation data due Wednesday and the BoE meeting scheduled for Thursday, market participants are bracing for potential volatility in sterling.

Simultaneously, the US Federal Reserve will announce its latest policy decision on Wednesday, with no change in rates expected, but attention will be focused on any forward guidance regarding future rate cuts as inflation shows signs of easing.

As for commodities, oil markets remained highly sensitive to the ongoing Israel-Iran conflict. Iran’s Revolutionary Guard confirmed it had launched ballistic missiles at Israeli military and energy infrastructure targets, escalating the confrontation despite international appeals for de-escalation. This development further boosted crude prices amid fears of wider regional conflict that could threaten global oil supplies. While the direct economic implications remain unclear, energy price shocks could reintroduce inflationary pressures globally, potentially altering the trajectory of central bank policies.

The spotlight this week will also be on central banks beyond the US and UK. The Bank of Japan’s Tuesday meeting, while unlikely to result in an immediate policy shift, could offer clues about the timing and magnitude of future changes. China’s central bank is also expected to review its loan prime rate, a key metric for business and consumer lending, amid signs of uneven growth. Meanwhile, the Swiss National Bank and the Bank of England are both scheduled to decide on monetary policy, further underscoring a busy and potentially market-moving week for global investors.

In short, markets are navigating a complex and volatile environment. Between the rising geopolitical risks in the Middle East, uncertain trade dynamics, mixed economic signals, and a dense calendar of central bank meetings, traders and investors are facing a flurry of crosscurrents. While softer inflation data in the US briefly buoyed sentiment, broader concerns about global growth and escalating conflict have once again taken center stage.