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The Fed’s refusal to quicken the pace of rate cuts and the growing likelihood of regional war in the Middle East are weighing on global risk sentiment.

1. The US Federal Reserve met last night, announcing that it will maintain its interest rate at the relatively high rate of 4.25%, as was almost unanimously expected by analysts. The most important part of the release and press conference was the emphasis that the Fed is in no hurry to cut its interest rate, despite the risk to the economy which will potentially be caused by President Trump’s new tariffs and resulting retaliatory tariffs imposed by other countries. This saw stocks and other risky assets taking a downturn, with the US Dollar and other safe haven assets benefiting.
2. According to the CME FedWatch tool, markets are still expecting two rate cuts by the Fed before the end of 2025, one in September and one in December, so this is really only a minor development.
3. The war between Iran and Israel enters its seventh day with Israel striking hard at the Iranian nuclear program, including Isfahan and Arak, and continuing to hit regime targets. Yesterday saw President Trump forcefully reject talk of a ceasefire at the same time as three Iranian government planes were allowed by Israel to depart Iran and arrive in Oman. President Trump stated that he demanded nothing less than unconditional surrender by Iran, after which the Iranian nuclear program would be peacefully destroyed. Trump’s bottom line: Iran must not develop a nuclear weapon. Stock markets rose as rumours of an Iranian desire to visit Trump circulated, but Iranian Supreme Leader angrily rejected any talk of “groveling before the White House”. Minutes later, the US began organising to evacuate more of its citizens and assets from the region, signaling a potential escalation. On the USA getting involved in attacking Iran, Trump said “I might do it, I might not”. Most analysts see the chance of US involvement as rising, with Israeli government officials apparently convinced it is a question of when, not if.
4. The rate of successful Iranian missile fire on Israel had so declined that yesterday the Israeli governent ordered a reopening of workplaces provided they are located near protected areas. About an hour after dawn, Iran fired a relatively large missile barrage targeting a major hospital in Beersheva, a financial target in Ramat Gan, and a residential area near Tel Aviv. There are at least 100 wounded, several seriously. The Israeli government has responded by stating that it will increase its efforts to hit regime targets in Iran, and labelling Khamenei as a war criminal. This is somewhat of an escalation and might further weigh on risk sentiment, as President Trump has been protecting Khameini from being targeted. The price of WTI Crude Oil is rising, looking bullish near its 4-month high.
5. The Bank of England will be holding a policy meeting today but is not expected to cut its interest rate.
6. The Swiss National Bank will be holding a policy meeting today and is expected to cut its interest rate from 0.25% to 0%.
7. The Forex market is more active this morning. Since the Tokyo open, the strongest major currency has been the New Zealand Dollar, while the weakest has been the Japanese Yen, suggesting a clear risk-off sentiment is dominant. The EUR/USD currency pair is falling quite firmly against its bullish long-term trend. The US Dollar is continuing to strengthen.
8. It is a public holiday in the USA today (Juneteenth).
9. Tomorrow will be a public holiday in New Zealand.