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In the coming week, global financial markets will be drawn to several crucial central bank meetings, including those of the Federal Reserve (Fed) in the United States, the Bank of England, and the Bank of Japan. In parallel, inflation data from the UK and Japan, along with economic activity data from both the US and China, will also attract considerable attention. Throughout this week, central banks in countries such as Switzerland, Norway, Sweden, Turkey, and the Philippines will also convene for interest rate decision meetings.

The geopolitical developments in the Middle East, particularly Israel's attacks on Iranian nuclear facilities, triggered a significant stock market drop and a spike in oil prices, potentially further influencing market sentiment and the interest rate determinations by various central banks.

1. US Federal Reserve Maintains Rates, But Rate Cut Expectations Persist
The Federal Open Market Committee (FOMC) meeting will occur mid-week. Despite pressure for lower rates from President Trump, and a Consumer Price Index (CPI) report coming in below expectations, the Fed is generally anticipated to keep the Federal Funds rate steady for now. This is primarily due to the inflation rate still exceeding the target (2.4%), coupled with the uncertainty surrounding the potential impacts of tariffs on prices, which remains a key focus for the Fed. Additionally, the labor market in the US continues to exhibit resilience, as indicated by the latest S&P Global US Purchasing Managers' Index (PMI) data and updates to the official labor market. Nevertheless, the Fed's next move may likely be a rate cut. According to the latest June S&P Global Investor Manager Index (IMI), currency managers generally expect a reduction of as much as 50 basis points in the second half of 2025. The market widely anticipates that the next rate cut may not happen until the end of the year, but LSEG data shows that currency markets have fully priced in a rate cut in October, with a strong possibility of a cut even in September.

2. Bank of England (BoE) Rate Decision
The Bank of England will hold its rate decision meeting on Thursday, with the consensus expecting the benchmark rate to remain unchanged at 4.25%. However, the May PMI data from the UK indicate sluggish economic growth and easing inflation pressures, suggesting a clear bias towards a potential rate cut at the Bank of England. The BoE had previously reduced the bank rate by 25 basis points to 4.25% in May. While no rate cut is expected this week, the market generally anticipates that the BoE will lower rates again in August, followed by a further cut in November. The currency market has fully priced in another rate cut in September, and the risk of an earlier cut in August is also considered significant, with expectations of another rate cut before the end of this year and again in early 2026. The Bank of England recently indicated its intention to take a gradual, quarterly approach to cutting rates due to the still high inflation levels.

3. Bank of Japan's Rate Decision Amid Economic Challenges
The Bank of Japan will also hold a monetary policy meeting, even though the market anticipates that its policy stance will remain unchanged until later this year. However, Japan's central bank faces increasing challenges in maintaining its determination to raise rates due to worsening economic trends. The data from May indicate that Japan's economic growth has nearly stagnated due to uncertainties in US trade policies hampering global trade. Economies in the Asia-Pacific region are generally experiencing slower growth, with export order growth rates declining significantly, as evidenced by PMI indicators.

4. Key Economic Data Set to Be Released
On Tuesday, the US will release May data for retail sales and industrial production, which are significant indicators of consumer spending and manufacturing activity. According to PMI data, May saw noticeable growth in service sector activity, while manufacturing output declined, suggesting a positive outlook for retail sales. On Wednesday, May construction permits and new housing starts data will provide insights into the real estate market's current state. Additional data will include May import-export prices, April business inventories, and the June NAHB housing market index.

5. China's Economic Data
To gain deeper insights into the impact of trade disruptions, China's industrial production and retail sales data will be scrutinized. Despite the weak manufacturing conditions indicated by the Caixin PMI data, industrial production figures are still expected to attract attention, while accelerated growth in service sector activities suggests a potential improvement in retail sales. This week, China will also release May housing price index, fixed asset investment, unemployment rate, new renminbi loans, M2 and loan growth rates, as well as the June Loan Prime Rate (LPR).

Commentary: Trump's monetary fantasies are creating what he refers to as the "Fed's dereliction of duty."