United Kingdom: Fiscal Policy, Trade Risks & Economic Signals

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Middle East Ceasefire Lowers Risk Premium: A ceasefire between Israel and Iran eases geopolitical tensions, reducing demand for the U.S. dollar as a safe haven. Oil prices fall—Brent trades around $68.80—and GBP/USD rises modestly, supported by improved global sentiment and energy market relief.

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UK Restricts Steel Imports: The UK government announces trade protection measures, restricting steel imports to shield domestic industry from U.S. export spill-overs. At the same time, ministers push forward with a £2.5 billion automotive support package. These developments signal fiscal intervention and industrial support, giving sterling a mild boost.

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BoE Governor Cautions on Tariff-Driven Inflation: BoE Governor Andrew Bailey warns that U.S. trade tariffs, especially from a potential second Trump administration, increase global supply chain uncertainty and inflation risk. Deputy Governor Ramsden supports the current rate stance but leaves the door open for cuts, injecting policy ambiguity into the outlook for sterling.

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UK Output Prices Hit Four-Year Low: UK business surveys show output price inflation slowing to its weakest pace since 2021. While this reinforces market expectations of further BoE rate cuts (possibly in August), it also reflects a slowdown in manufacturing demand.

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UK Composite PMI Climbs Slightly: The June S&P Global Composite PMI rises to 50.7, led by modest gains in the services sector. Manufacturing remains in contraction, suggesting a fragile recovery. Overall sentiment improves slightly, but downside risks persist.

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United States: Fed Tone Softens, Dollar Shows Mixed Signals

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Fed Officials Lean Dovish: Comments from Fed members, including Bowman and Waller, indicate that interest rate cuts may arrive by late summer, as inflation pressures remain contained. Markets adjust expectations accordingly, although Chair Powell maintains a balanced tone in recent testimony.

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Dollar Rallies on Safe-Haven Flows, But Outlook Softens: Despite the ceasefire, prior market jitters and strong U.S. equity gains keep the U.S. dollar index elevated, posting its best weekly gain since February. Still, as risk appetite returns and oil prices fall, the dollar shows signs of losing upward momentum.

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Investors Await Core PCE and Final GDP: Markets position cautiously ahead of key U.S. data releases—Core PCE and Q1 GDP (final)—scheduled later this week. These are critical for confirming the disinflation trend and timing of Fed policy shifts.

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