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Key drivers of FX this week – central bank decisions, inflation data, and global risk sentiment

This week brings a busy calendar for FX markets, with inflation figures, central bank announcements, and geopolitical tensions likely to shape price action across major currencies. Here's what to watch.

UK CPI Inflation Report – Wednesday, June 19 @ 07:00 BST

The UK will release May inflation data midweek, with headline CPI forecast to rise 3.4% year-on-year.

• While inflation continues to trend lower, it remains well above the Bank of England’s 2% target.
• A softer reading could reinforce expectations of BoE rate cuts later this year.
• However, any upside surprise may delay that timeline and lift GBP.
• The British pound is likely to see volatility around the release.

Why it matters:
With recent UK economic data pointing to weakness, this CPI print will play a key role in shaping near-term BoE policy expectations.

Bank of Japan Policy Decision – Tuesday, June 18 @ 07:00 JST

The BoJ is expected to leave its policy rate unchanged at 0.50%, after hiking earlier this year for the first time in decades.

• Markets will focus on any change in tone around bond purchases or inflation guidance.
• A more hawkish signal could push the yen higher, especially versus USD and EUR.
• If the BoJ reiterates a cautious stance, the yen may remain under pressure.

Why it matters:
After years of ultra-loose policy, even modest signals from the BoJ now carry weight in global FX markets.

US Retail Sales – Tuesday, June 18 @ 13:30 BST

US retail sales data for May is forecast to decline by -0.7% month-over-month.

• This would mark a second weak month and raise concerns about consumer demand.
• A disappointing print could further tilt the Fed toward easing later in 2025.
• The US dollar may face short-term pressure if the data misses expectations.

Why it matters:
With the Fed already cautious on rates, any sign of slowing demand strengthens the case for cuts — and weakens the dollar.

Geopolitical Risk: Middle East Tensions

Tensions between Israel and Iran remain elevated, increasing market sensitivity to geopolitical developments.

• Risk sentiment may be fragile, especially if the situation escalates.
• Safe-haven flows into gold, USD, and JPY could increase.
• Markets may see reactive price swings even without direct economic triggers.

Why it matters:
Uncertainty beyond macro data can still drive currency flows, particularly in risk-off environments.

Big Picture Takeaway

Markets are on alert this week. Central banks remain in focus, with the BoJ and BoE in particular drawing investor attention. Meanwhile, geopolitical risks are adding a layer of uncertainty.

Expect FX volatility around GBP, JPY, and USD pairs as key data is released and risk sentiment shifts.