10 min read Weekly Recap
Iran-Israel war reignites, then US-Iran peace deal announced
The week opened with the most severe escalation in months, as Israel and Iran exchanged direct missile fire on June 7-8, marking the first such incident since the Pakistan-brokered ceasefire on April 8. These strikes followed an Israeli attack on Hezbollah’s headquarters in Beirut and a tense June 1 phone call between Prime Minister Netanyahu and President Trump. Iran ceased its offensive after Trump publicly called for a “stand down” on Monday.
On Sunday, June 14, Pakistani Prime Minister Shehbaz Sharif announced a US-Iran peace deal, which President Trump immediately confirmed on Truth Social, stating, “The Deal with the Islamic Republic of Iran is now complete.” Iran’s Deputy Foreign Minister Kazem Gharibabadi also confirmed the agreement, with the formal signing set for Friday, June 19, in Switzerland. The deal provides for toll-free reopening of the Strait of Hormuz, immediate removal of the US naval blockade, and an end to military operations, including those in Lebanon.
UK Brent recorded its largest weekly loss in months, dropping below $86.5 per barrel on Friday, the lowest since early March. The benchmark fell approximately 6% for the week, despite a spike following Monday’s missile exchange. The IEA cautioned that the global market may remain undersupplied through Q3, even with the peace deal, due to damaged Gulf infrastructure and depleted inventories.
According to Defense Secretary Hegseth, implementation will be “performance-based,” with the blockade lifting as the Strait reopens over several weeks. Brent’s trajectory depends on the June 19 signing; successful execution could push prices below $73.20, while any disruption could reverse gains toward $92.
ECB delivers historic +25bp hike, first since 2023
On Thursday, June 11, the European Central Bank surprised markets with its first rate increase since 2023, raising the deposit facility rate by 25 basis points to 2.25%. This hawkish shift follows euro area inflation rising to 3.2% in May, above the 2% target, and core inflation increasing to 2.5% from 2.2% in April. The decision marks a clear break from the 2024-2025 rate-cutting cycle.
President Lagarde’s press conference confirmed significant upward revisions to inflation forecasts for 2026 and 2027 in the updated Eurosystem staff projections. Bloomberg analysts expect the ECB may implement two additional hikes by September, potentially raising the deposit rate to 2.50-2.75% by year-end. The Governing Council noted that energy-driven inflation from the Iran conflict has intensified second-round effects in wages and services.
EUR/USD rose modestly following the announcement but retreated later in the week after a stronger-than-expected US CPI. Divergent central bank policies, with the ECB hiking, the Fed signaling possible increases, and the BoJ considering its first move of 2026, have reshaped cross-asset dynamics.
If the upcoming ECB minutes confirm a continued hawkish stance, EUR/USD could rise toward 1.1680. Conversely, a pause in further hikes after June would likely weigh on the pair, especially if the FOMC’s dot plot signals a December US rate hike.
US CPI May hits 4.2%
The US headline CPI increased to 4.2% year-on-year in May, the highest since April 2023, up from 3.8% previously. The monthly gain of 0.5% met expectations, while core CPI rose 0.2%, below the 0.3% consensus, bringing the annual core rate to 2.9%. Energy prices surged 3.9% month-on-month and 23.5% year-on-year, contributing over 60% of the headline increase.
US equities posted their first weekly loss in ten weeks, with the S&P 500 closing at 7,431.46, down about 2% from the previous week’s 7,580.06. The Dow Jones gained 0.7% on Friday to 51,202.26, while the Nasdaq 100 closed at 29,635.95. The longest winning streak since 2023 ended due to elevated CPI, the Iran escalation, and renewed concerns about valuations ahead of the Fed meeting.
A hawkish FOMC dot plot on Wednesday, combined with increased equity volatility, could push the US100 toward 28,950. Conversely, a dovish hold or indications that the Iran deal will lower energy prices could support a rebound toward 30,600 and open the path to 32,700.
India CPI May 3.7% — below 4% target despite oil pressure
India’s headline CPI for May was approximately 3.7% year-on-year, below both the Reuters consensus of 4.0% and the RBI’s 4% target. Food inflation rose to 4.8% from 4.2% in April, the highest in 16 months, driven by higher vegetable prices and Middle East-related fuel costs. However, muted inflation in transport, housing, and utilities kept the overall reading below target.
This result gives the RBI continued flexibility, following its decision to hold the repo rate at 5.25% on June 5 and revise its FY27 inflation forecast to 5.1%. With the US-Iran peace deal reducing some energy price risks, the central bank’s neutral stance is now more consistent with current data trends.
The Nifty 50 faces mixed catalysts this week. Optimism from the peace deal is supportive, while the FOMC’s tone and potential Modi-Trump fallout from the G7 remain uncertain. A confirmed Iran deal and dovish Fed could lift the index toward 24,600, while a deal collapse or hawkish FOMC dot plot could push it down to 23,070.
Week Ahead (US & Asia)
SBP Monetary Policy Decision — Monday, 15 June, ~12:00 UTC
The State Bank of Pakistan’s Monetary Policy Committee meets on Monday, June 15, to make the final policy decision for FY26. Markets are evenly divided between expecting a hold at 11.50% and a rate hike, according to a Topline Securities survey. The announcement and Governor Jameel Ahmed’s press conference are scheduled for around 5:00 PM PKT (12:00 UTC). Only 2% of respondents expect a rate cut.
The decision comes amid worsening inflation since the surprise April 27 hike. Pakistan’s May CPI rose to 11.7% year-on-year, the highest since June 2024, up from 10.9% in April. However, the US-Iran peace deal and planned reopening of the Strait of Hormuz could significantly ease imported inflation as the MPC meets.
A hawkish hike, combined with hot inflation and a stable rupee, would weigh on KSE-100 by tightening borrowing costs. A surprise hold, supported by the Iran deal removing the worst-case oil inflation scenario, could push the index back toward 160,400.
BoJ Rate Decision — Wednesday, 17 June, ~03:00–06:00 UTC
The Bank of Japan will conclude its two-day policy meeting on Wednesday, June 17. The Statement on Monetary Policy will be released between 12:00 and 15:00 JST (03:00–06:00 UTC), followed by Governor Ueda’s press conference at approximately 15:30 JST (06:30 UTC). The BoJ currently maintains the policy rate at 0.5% after January’s hike, and this meeting will include an interim review of the JGB purchase reduction plan.
Markets anticipate either a hold or a hawkish surprise hike to 0.75%, as Japan’s underlying inflation remains above target and yen weakness has intensified. Core inflation has stayed near 3% for several months, and the 10-year JGB yield reached an 18-year high earlier this week. Spring wage negotiations earlier in the year have supported the BoJ’s normalization narrative.
The BoJ decision will occur just hours before the FOMC announcement, making Wednesday pivotal for the direction of USD/JPY. A hawkish BoJ surprise alongside a dovish Fed could trigger a strong yen rally, while a BoJ hold followed by a hawkish Fed dot plot could push USD/JPY toward 161.85.
FOMC — Wednesday, 17 June, 18:00 UTC
The June FOMC announcement at 14:00 ET (18:00 UTC) on Wednesday, June 17, is the most significant Fed event of 2026 to date. It marks Kevin Warsh’s first meeting as Chair following his 54-45 Senate confirmation on May 13 and swearing-in on May 22, the most contentious Fed Chair confirmation in recent history. Warsh’s press conference will follow at 14:30 ET (18:30 UTC).
The decision is widely expected to leave the federal funds rate at 3.50%–3.75% — CME FedWatch indicates roughly 98% probability of a hold. However, this is a Summary of the Economic Projections meeting that releases the dot plot alongside the rate decision. The dot plot is the focal point: markets are watching whether the median dot adds a December hike to the path, or whether Warsh’s first projections push the next cut into 2027.
After May’s elevated CPI of 4.2% and expectations for continued high core PCE, fed funds futures now assign about a 50% chance of a December rate hike, a significant shift from earlier expectations of rate cuts. Goldman Sachs now forecasts rate cuts in 2027. At the April meeting, Governors Hammack, Kashkari, and Logan dissented against any easing bias, while Governor Miran favored an immediate cut.
A hawkish dot plot indicating a December hike could push Gold below $4,052, while a neutral tone from Warsh and optimism over the peace deal could lift prices toward $4,580.
BoE Rate Decision — Thursday, 18 June, 11:00 UTC
The Bank of England’s Monetary Policy Committee will announce its rate decision at 12:00 noon UK time (11:00 UTC) on Thursday, June 18, along with the MPC minutes. The Bank Rate remains at 3.75% after an 8-1 hold at the April 30 meeting, with Chief Economist Huw Pill as the sole advocate for a 25-basis-point hike to 4.00%.
The MPC’s April projections indicate CPI inflation will rise further into Q3 and Q4 2026 before easing, with a peak forecast of 3.6-3.7% by year-end. UK CPI increased to 3.3% in April, prompting the BoE to signal that policy “would need to lean against” second-round inflation effects. Most market participants expect a hold, with the vote split and accompanying language as key drivers.
A hawkish hold with multiple dissents or clear guidance toward August hikes could push GBP/USD toward 1.3510. Conversely, a unanimous dovish hold could see sterling fall toward 1.3320 as markets anticipate the end of the tightening cycle.
Bottom line
The coming week features four major central bank decisions and the formal US-Iran peace signing within five trading days, creating a dense schedule that could reshape the macro outlook for the second half of 2026.
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