IC Markets Europe Fundamental Forecast | 23 June 2025
What happened in the Asia session?
Following the strategic strikes on Iran’s key nuclear facilities by the U.S. over the week, oil prices surged once more at today’s open. WTI oil futures initially surged over 6% to rally as high as $78.40 per barrel, as investors anxiously waited to see if Iran would retaliate against the U.S. attacks, with resulting risks to global activity and inflation. The Strait of Hormuz, a key sea passage only about 33 km wide at its narrowest point, sees around a quarter of global oil trade and 20% of liquefied natural gas supplies, is closely watched. Further attacks could scare off oil tankers passing through this strait in the coming week, raising concerns of a major supply disruption. However, WTI futures pulled back sharply as prices fell under the $75 handle by midday in Asia.
What does it mean for the Europe & US sessions?
June’s flash Composite PMI report for the Euro Area points to a return to expansion for the services sector while manufacturing activity continues to contract. Should we see a ‘soft’ PMI report, the Euro could face further headwinds, especially when the U.S. dollar has seen a renewed resurgence since mid-June.
Consumer spending in the U.K. unexpectedly declined more than originally anticipated in May, diving 2.7% MoM versus the estimated drop of 0.5%, based on Friday’s report. This marked the steepest monthly drop since December 2023, driven largely by a 5% fall in food store sales- the biggest decline since May 2021 – due to reduced supermarket sales. Retailers cited inflation, weaker consumer spending, and lower sales of alcohol and tobacco products as key factors. Moving over to economic activity, the flash Composite PMI report for June points to another month of expansion for the services sector while manufacturing activity continues to contract.
The Dollar Index (DXY)
Key news events today
Composite PMI (1:45 pm GMT)
What can we expect from DXY today?
The flash PMI estimate for June points to a continued expansion for both the manufacturing and service sectors. Despite the ongoing global trade policy uncertainties, PMI output has held up well so far. Another month of robust expansion could provide further tailwinds for the DXY later today.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25 to 4.50% on 18 June 2025.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run; uncertainty around the economic outlook has diminished but remains elevated.
- The Committee is attentive to the risks to both sides of its dual mandate and judges that the unemployment rate remains low, labour market conditions remain solid, but inflation is somewhat elevated.
- Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace.
- GDP growth forecasts were revised downward for 2025 (1.4% vs. 1.7% in the March projection) while PCE inflation projections have been adjusted higher for 2025, with core inflation expected to reach 3.1% (vs. 2.8% in the March projection), partly due to tariff-related pressures.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of its goals.
- Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25B to $5B while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35B.
- The next meeting is scheduled for 29 to 30 July 2025.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Composite PMI (1:45 pm GMT)
What can we expect from Gold today?
The flash PMI estimate for June points to a continued expansion for both the manufacturing and service sectors. Despite the ongoing global trade policy uncertainties, PMI output has held up well so far. Another month of robust expansion could provide further tailwinds for the DXY later today and potentially weigh on gold. Spot prices drifted toward $3,350/oz despite heightened geopolitical tensions over the weekend.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Composite PMI (11:00 pm GMT 22nd June)
What can we expect from AUD today?
Composite PMI activity in Australia hit a 3-month high with a reading of 51.2 in June, based on flash estimates. Business activity expanded at a faster pace, underpinned by greater new business inflows and driven by the services sector. Manufacturing sector conditions also improved, with production returning to growth following a brief decline in the previous month.
Central Bank Notes:
- The RBA reduced its cash rate by 25 basis points (bps), bringing it down to 3.85% on 20 May, following a pause on 1 April.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
- Data on inflation for the March quarter provided further evidence that inflation continues to ease. At 2.9%, annual trimmed mean inflation was below 3% for the first time since 2021 and headline inflation, at 2.4%, remained within the target band of 2 to 3%.
- While recent tariff announcements have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries, contributing to a weaker outlook for growth, employment and inflation in Australia.
- Private domestic demand appears to have been recovering, real household incomes have picked up and there has been an easing in some measures of financial stress. However, businesses in some sectors continue to report that weakness in demand makes it difficult to pass on cost increases to final prices.
- At the same time, a range of indicators suggests that labour market conditions remain tight. Employment is continuing to grow, measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers.
- Looking through quarterly volatility, wage growth has softened over the past year or so but productivity growth has not picked up and growth in unit labour costs remains high.
- There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments. While the central projection is for growth in household consumption to continue to increase as real incomes rise, recent data suggest that the pick-up will be a little slower than was expected three months ago.
- There is a risk that any pick-up in consumption is even slower than this, resulting in continued subdued growth in aggregate demand and a sharper deterioration in the labour market than currently expected.
- With inflation expected to remain around target, the Board therefore judged that an easing in monetary policy at this meeting was appropriate, assessing that this move would make monetary policy somewhat less restrictive.
- The Board will be attentive to the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
- The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.
- The next meeting is on 8 July 2025.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
With no major domestic catalysts for the Kiwi, demand for the greenback will likely drive its direction over the course of the day. This currency pair was floating around 0.5950 at the beginning of Monday’s Asia session.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 25 basis points bringing it down to 3.25% on 28 May, marking the sixth consecutive rate cut.
- The Committee stated that annual consumer price index inflation increased to 2.5% in the first quarter of 2025 while inflation expectations across firms and households have also risen.
- However, core inflation is declining and there is spare productive capacity in the economy; these conditions are consistent with inflation returning to the mid-point of the 1 to 3% target band over the medium term.
- The New Zealand economy is recovering after a period of contraction as high commodity prices and lower interest rates are supporting overall economic activity but recent developments in the international economy are expected to reduce global economic growth.
- Both tariffs and increased policy uncertainty overseas are expected to moderate New Zealand’s economic recovery and reduce medium-term inflation pressures. However, there remains considerable uncertainty around these judgements.
- Labour market conditions remain weak while the unemployment rate is expected to peak this quarter at 5.2%.
- Inflation is within the target band, and the Committee is well placed to respond to domestic and international developments to maintain price stability over the medium term.
- The next meeting is on 9 July 2025.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
Composite PMI (12:30 am GMT)
What can we expect from JPY today?
Japan’s private sector had a positive end to the second quarter, with business activity growth improving to a 4-month high on the back of a stronger increase in services activity and a fresh rise in manufacturing production, according to June’s flash PMI report. However, overall demand conditions remained challenging, with total new business rising only slightly, and weaker foreign demand for manufactured goods dampening overall export sales. Companies indicated that U.S. tariffs and lingering uncertainty over the global trade outlook continued to inhibit customer demand.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 17 June, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
- The Bank will continue its plan to reduce the amount of its monthly outright purchases of JGBs. The scheduled amount of monthly long-term government bond purchases will, in principle, be reduced by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, aiming for a level of around ¥2 trillion in January to March 2027.
- Japan’s economy, while showing some weak movements in certain areas, is recovering moderately. Overseas economies, though partly exhibiting weakness due to the effects of various countries’ trade policies, are generally growing at a moderate pace. Exports and industrial production, while showing some last-minute demand due to the U.S. tariff increases, are basically moving sideways.
- On the price front, looking at the year-on-year rate of change in consumer prices (excluding fresh food), the rate is currently in the mid-3% range, reflecting continued pass-through of wage increases to sales prices, as well as the effects of past rises in import prices and recent increases in food prices such as rice. Expected inflation rates are rising moderately.
- As for consumer prices (excluding fresh food), the effects of past import price increases and recent rises in food prices such as rice, which have pushed up inflation so far, are expected to wane. During this period, the underlying rate of increase in consumer prices may stagnate somewhat due to the slowdown in growth pace.
- Looking ahead, the Japanese economy is expected to slow its growth pace, as overseas economies decelerate due to the effects of various countries’ trade policies, putting downward pressure on Japanese corporate profits, etc., although accommodative financial conditions will provide some support. Thereafter, as overseas economies return to a moderate growth path, Japan’s growth rate is expected to increase.
- As the growth rate rises, labour shortages intensify, and medium- to long-term expected inflation rates rise, inflation is expected to gradually increase. In the latter half of the projection period in the “Outlook Report,” inflation is expected to move at a level generally consistent with the “price stability target”.
- There are various risk factors, but in particular, the outlook for the development of trade policies in various countries and the resulting uncertainty regarding overseas economic and price trends is extremely high. It is necessary to closely monitor the impact on financial and foreign exchange markets, as well as on Japan’s economy and prices.
- The next meeting is scheduled for 31 July 2025.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Composite PMI (8:00 am GMT)
What can we expect from EUR today?
June’s flash Composite PMI report for the Euro Area points to a return to expansion for the services sector while manufacturing activity continues to contract. Should we see a ‘soft’ PMI report, the Euro could face further headwinds, especially when the U.S. dollar has seen a renewed resurgence since mid-June.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 5 June to mark the seventh successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 2.15%, 2.40% and 2.00% respectively.
- Inflation is currently at around the Governing Council’s 2% medium-term target. In the baseline of the new Eurosystem staff projections, headline inflation is set to average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to average 2.4% in 2025 and 1.9% in 2026 and 2027, broadly unchanged since March.
- Staff see real GDP growth averaging 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027. The unrevised growth projection for 2025 reflects a stronger-than-expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.
- Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation.
- The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. Especially in current conditions of exceptional uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
- The Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission, and it is not pre-committing to a particular rate path.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
- The next meeting is on 24 July 2025.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events
What can we expect from CHF today?
Demand for the greenback remained robust as markets reopened today, with USD/CHF rising toward the 0.8200 handle. This currency pair rose nearly 0.9%, the largest weekly gain since the end of April, and will likely continue its upward trajectory.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
- Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
- Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026 and 0.7% for 2027.
- The global economy continued to grow at a moderate pace in the first quarter of 2025 but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
- Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
- Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 25 September 2025.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Composite PMI (8:30 am GMT)
What can we expect from GBP today?
Consumer spending in the U.K. unexpectedly declined more than originally anticipated in May, diving 2.7% MoM versus the estimated drop of 0.5%, based on Friday’s report. This marked the steepest monthly drop since December 2023, driven largely by a 5% fall in food store sales- the biggest decline since May 2021 – due to reduced supermarket sales. Retailers cited inflation, weaker consumer spending, and lower sales of alcohol and tobacco products as key factors. Moving over to economic activity, the flash Composite PMI report for June points to another month of expansion for the services sector while manufacturing activity continues to contract.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.25% on 19 June 2025, with three members preferring to reduce the Bank Rate by 25 basis points.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100 billion over the next 12 months to a total of £558 billion, starting in October 2024. On 19 June 2025, the stock of UK government bonds held for monetary policy purposes was £590 billion.
- There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
- Twelve-month CPI inflation increased to 3.4% in May from 2.6% in March, in line with expectations in the May Monetary Policy Report. The rise was largely due to a range of regulated prices and previous increases in energy prices.
- Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.
- Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year.
- Global uncertainty remains elevated while energy prices have risen owing to an escalation of the conflict in the Middle East, prompting the Committee to remain sensitive to heightened unpredictability in the economic and geopolitical environment.
- There remain two-sided risks to inflation. Given the outlook and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate and the Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy.
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 7 August 2025.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events
What can we expect from CAD today?
According to Friday’s preliminary estimates, consumer spending in Canada plunged 1.1% MoM in May, highlighting the sharpest decline in turnover since March 2023. This drop could be attributed to the higher impact of tariffs from the United States, driving consumers to refrain from spending usual amounts. Coupled with stronger demand for the greenback, USD/CAD climbed above the 1.3700 handle to register its first weekly gain of June, rising 1.1%. Coupled with renewed demand for the greenback, this currency pair broke above 1.3750 and was rising strongly at the beginning of Monday’s Asia session.
Central Bank Notes:
- The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% on 4th June – marking the second consecutive meeting where rates were kept on hold.
- The Governing Council noted that the ongoing increase and decrease of various U.S. tariffs, coupled with highly uncertain outcomes of bilateral trade negotiations and tariff rates remaining well above their levels at the beginning of 2025, placed downside risks on growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing.
- The higher uncertainty stemmed from the absence of a clear tariff path by the U.S. and persistent threats of new trade actions, which prompted the BoC Governing Council to highlight risks such as the extent to which higher US tariffs reduce demand for Canadian exports.
- Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
- Housing activity was down, driven by a sharp contraction in resales, while government spending also declined. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.
- The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9% while CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6%.
- The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up, while recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs.
- The Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs while proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy.
- The Governing Council will focus on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval by supporting economic growth while ensuring that inflation remains well-controlled.
- The next meeting is on 30 July 2025.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news events
What can we expect from Oil today?
Following the strategic strikes on Iran’s key nuclear facilities by the U.S. over the week, oil prices surged once more at today’s open. WTI oil futures initially surged over 6% to rally as high as $78.40 per barrel, as investors anxiously waited to see if Iran would retaliate against the U.S. attacks, with resulting risks to global activity and inflation. The Strait of Hormuz, a key sea passage only about 33 km wide at its narrowest point, sees around a quarter of global oil trade and 20% of liquefied natural gas supplies, is closely watched. Further attacks could scare off oil tankers passing through this strait in the coming week, raising concerns of a major supply disruption. However, WTI futures pulled back sharply as prices fell under the $75 handle by midday in Asia.
Next 24 Hours Bias
Medium Bullish
