Bridge Over Troubled Water

June 24, 2025
6 min read
  • A ceasefire between Iran and Israel is now in force. Stocks surge, crude oil prices tumble, and USD plunge across the board.
  • Fed Chair Jay Powell testimony before the House Committee on Financial Services takes the spotlight. Powell will likely stick to the no hurry to resume easing script.
  • Canada May CPI print will be a key driver of Bank of Canada July rate cut expectations.

 

 

Bridge Over Troubled Water

US

Risk-on sentiment is back in play as a ceasefire between Iran and Israel is now in force. Both Israel and Iran agreed to the truce. Brent crude oil prices plunged to nearly $68 a barrel after hitting a multi-month high yesterday at $81.4 a barrel. Global equity markets are rallying, and the dollar slumped across the board to recent cyclical lows. Assuming the ceasefire holds, the fundamental downtrend in USD should reassert itself.

Yesterday, Fed Vice Chair for supervision Michelle Bowman raised the prospect a July Fed funds rate cut. Bowman stressed that “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting [July 29-30].” Following Bowman’s comments Fed funds futures raised odds of a July rate cut to 25% from 16%. Meanwhile, Chicago Fed President Austan Goolsbee (2025 voter) noted that the Fed should cut rates if the tariff “dirt is out of the air.” Last Friday, Fed Governor Christopher Waller said the Fed can lower rates “as early as July.”

The FOMC doves have so far been more vocal than the hawks since last week’s Fed meeting. More Fed speakers are schedule to speak today (see next paragraph). We expect most of them to adopt a more cautious tone on further easing given the recent shift to a less dovish dot plot distribution. Remember, Fed Chair Jay Powell struck a surprisingly hawkish tone last week. Powell reiterated that the Fed is well positioned to wait for greater clarity before considering any adjustments to the policy stance. Powell also warned “we expect a meaningful amount of inflation to arrive in the coming months.”

Cleveland Fed President Beth Hammack (2026 voter) (2:15pm London), Fed Chair Jay Powell (3:00pm London), New York Fed President John Williams (5:30pm London), Minneapolis Fed President Neel Kashkari (2026 voter) (6:45pm London), Boston Fed President Susan Collins (2025 voter) (7:00pm London), and Fed Governor Michael Barr (9:00pm London).

The US June S&P Global preliminary PMI was mixed. The good news is that private sector growth momentum slowed less than expected in June. The composite PMI dipped to a two-month low at 52.8 (consensus: 52.2) vs. 53.0 in May, service sector output growth cooled slightly to 53.1 (consensus: 53.0) vs. 53.7 in May and manufacturing output was unchanged at 52.0 (consensus: 51.0). The bad news is that price pressures rose sharply in June, adding to worries the economy may be moving in stagflationary direction.

The June Conference Board consumer confidence is today’s domestic data highlight (3:00pm London). Headline is expected at 99.8vs. 98.0 in May. The sentiment data no longer appears to be a reliable indicator of future spending behavior. Watch-out for the labor index (jobs plentiful minus jobs hard to get). In May, the labor index fell to an 8-month low of 13.2 vs. 13.7 in April, indicative of weakening labor market conditions.

EUROZONE

EUR/USD is nearing a breakout, trading just shy of the June 12 high at 1.1631. The German June IFO business index is up next (9:00am London). Headline is expected at 88.0 vs. 87.5 in May as trade hostility has peaked. Bottom line: the ECB is almost done easing which is EUR supportive. The swaps market implies one 25bps rate cut over the next 12 months and the policy rate to bottom at 1.75%.

CANADA

USD/CAD is trading heavy near 1.3700 after peaking at 1.3800 yesterday. Canada’s May CPI print will be a key driver of Bank of Canada (BOC) July rate cut expectations (1:30pm London). Headline CPI is expected at 1.7% y/y vs. 1.7% in April while core CPI (average of trim and median CPI) is anticipated at 3.0% y/y vs. 3.15% in April.

The BOC is concerned that “underlying inflation could be firmer than we thought” which has dampened expectations for additional rate cuts. The swaps market is pricing in 39% odds of a 25bps cut at the next July 30 meeting. Over the next 12 months, the swaps market implies a total of between 25bps and 50bps of easing and the policy rate to bottom between 2.25% and 2.50%.

HUNGARY

National Bank of Hungary is widely expected to keep rates steady at 6.50% (1:00pm London). At the last May 27 meeting, the bank decided unanimously to leave the base rate unchanged at 6.50%, marking the 8th consecutive hold since September 2024. The bank also showed no signs of departing from its hold stance. The bank reiterated that “maintaining tight monetary conditions is warranted” while Governor Varga warned that rates could remain at the current level for a “an extended period.” Nevertheless, the swaps market continues to price in 50bps of easing over the next twelve months.



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