Geopolitical events took a new turn in June as Iran and Israel engaged in a short but intense ‘12-day war’ that also included a US military attack on three Iranian nuclear facilities. Meanwhile, trade-related uncertainty dampened the outlook for the global economy: the World Bank warned that it could be heading for its worst decade since the 1960s.
- President Trump continued to criticised Fed Chair Jerome Powell
- US CPI inflation edged up to 2.4% YoY
- The ECB cut rates again
Gloomy outlook: geopolitical events took a new turn in June as Iran and Israel engaged in a short but intense ‘12-day war’ that also included a US military attack on three Iranian nuclear facilities. Meanwhile, trade-related uncertainty dampened the outlook for the global economy: the World Bank warned that it could be heading for its worst decade since the 1960s, saying: “Economic cooperation is better than any of the alternatives – for all parties.”
“‘Economic cooperation is better than any of the alternatives – for all parties’” (The World Bank)
Trump intensifies pressure on the Fed: imports of goods to the US dropped by 20% during April in response to President Trump’s tariffs, cutting the US trade deficit in goods by 43%. Although the annualised rate of US inflation edged up to 2.4% in May, the tariffs appear to have had a relatively limited impact on US consumers so far. The Federal Reserve (Fed) left interest rates unchanged , triggering fresh criticism of Fed Chair Jerome Powell from President Trump, who warned that he would select a new Chair to replace Chair Powell at the end of his term. The US dollar dropped to its lowest level against the pound since mid-2021.
Big, Beautiful Bill: as June ended, the US Senate was preparing to vote on President Trump’s “Big, Beautiful Bill”. The Congressional Budget Office calculated that the controversial bill would increase the budget deficit by US$2.4 trillion from 2025-2034. Over June, the Dow Jones Industrial Average Index rose by 4.3%.
ECB cuts again: the eurozone’s economy expanded by 0.6% over the first three months of 2025 compared with 0.3% in the previous quarter, underpinned by expansion of 9.7% in Ireland, reflecting its exposure to US multinationals. Inflation in the eurozone dropped below the European Central Bank’s (ECB’s) 2% target during May, falling from 2.2% in April to 1.9%, curbed by declines in the services sector. The ECB cut its key interest rate from 2.25% to 2%, but warned that trade-related uncertainty was set to weigh on business investment and exports. The Dax Index fell by 0.3% in June.
Inflationary pressures: in Japan, industrial production slowed by 1.8% year on year during May, reflecting the impact of US tariffs. Although the rate of core consumer price inflation slowed to 3.1% in June, it remained well above its 2% target. The Nikkei Index rose by 6.6% over the month, underpinned by yen weakness.
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