Norges Bank, BoE and SNB expected to keep rates unchanged

In focus today

• In Norway, we expect Norges Bank to keep the policy rate unchanged at 4.25% but signal a probability of around 50% for another rate hike in Q3, i.e. that they will keep a short-term tightening bias. Further out, we look for the rate path to point to a first full cut late next summer. Today's decision is accompanied by a full monetary policy report, new projections, an updated rate path and minutes at 10.00 CET.
• In the UK, we expect the Bank of England to keep the Bank Rate on hold at 3.75%. Recent data have been largely dovish, with weak PMIs, limited energy spillovers to core inflation and rising unemployment alongside accelerating job losses. There are also no clear signs of renewed wage pressure. The latest labour market report reinforces the case for patience rather than further tightening.
• In Switzerland, we expect the Swiss National Bank to leave the policy rate unchanged at 0%, in line with consensus and market pricing. Although inflation has surprised slightly on the upside, domestic price pressures remain subdued, and the strong CHF is disinflationary. We therefore do not expect a rate hike and look for the SNB to reiterate its readiness to intervene in the FX market.

Economic and market news

What happened overnight

US-Iran deal, President Donald Trump and Iranian President Masoud Pezeshkian digitally signed a memorandum of understanding to work towards a permanent peace deal between their two nations. Following the announcement, Brent crude declined below USD 78/bbl., while prediction markets grew more cautious on the normalization of traffic through Hormuz. Earlier drafts of the US-Iran deal suggested an interim agreement allowing immediate resumption of Iranian oil exports and possible access to a USD 300bn development programme, backed by sanctions waivers and unfreezing of overseas funds. Iran would "never produce nuclear weapons", with the nuclear file deferred to further talks over 60 days. G7 leaders welcomed the move, which followed Trump's remark that bombing could have continued for two years and his warning strikes could resume if talks collapse.

What happened yesterday

The Fed remained on hold at 3.50-3.75%, as expected, with Warsh's first meeting delivering no balance sheet surprises and a much shorter statement without forward guidance. Warsh did not submit projections, but the SEP revealed a clear hawkish bias, with nine members pencilling in rate hikes this year and six of them seeing more than one, alongside higher inflation forecasts. Markets reacted with higher US Treasury yields and a weaker EUR/USD, now pricing a more front-loaded chance of a hike. For further details, see our Fed Review: As committed as ever, 17 June.

In Sweden, the Riksbank left the policy rate unchanged at 1.75% as expected. The rate path was revised higher, but by less than we anticipated, reflecting softer inflation and growth forecasts, with core inflation seen only just above 2% next year. Despite language that the probability of a hike has increased, the modest path adjustment looks slightly dovish for SEK, pointing towards some upside in EUR/SEK. For more see Riksbank review - Small hawkish adjustment, 17 June.

In the euro area, final May data confirmed a surprisingly strong euro area services inflation print at 3.6% y/y, which looks only partly driven by temporary or seasonal factors. While summer house prices should reverse in June, other contributors such as airfares and package holidays mostly reflect base effects and are now back to more "normal" levels. Overall, the composition of services inflation is mildly hawkish for the ECB.

In the US, retail sales rose more than expected with 0.9% m/m in May, marking a fourth consecutive strong month as households stepped up car purchases despite higher petrol prices. The data, alongside stronger job growth and rising inflation, underscores the economy's resilience after the oil price shock.

In the UK, May CPI surprised slightly on the downside, with headline inflation at 2.8% and core at 2.6%, while services rose to 3.7% in line with expectations. The disinflation trend remains intact despite higher price pressures in surveys, and food inflation continued to ease to 2.1%. The print nudged EUR/GBP slightly higher and keeps focus on the upcoming labour market data and Bank of England meeting.

Equities moved lower on Wednesday, leaving them slightly down for the week, which is notable given the decline in energy prices since. The hawkish tone from the FOMC and the subsequent rate increase were the main drivers behind the pullback, with the S&P 500 dropping 1.2% for the day. Rate-sensitive sectors such as communication and real estate sold off sharply, down -2.5%, while value cyclicals continued to hold up well. In other words, the market is interpreting this hawkishness as being for the 'right' reasons, strong growth and higher inflation, rather than something very growth negative, which we agree with.

Interestingly, tech stocks handled the rising yields without much trouble, which is a contrast to the reaction to the strong job market report three weeks ago. Likewise, the hawkish stance from the Fed did not spill over into Asian markets today, with the Kospi and Nikkei both up 1-2% this morning.

FI and FX: A hawkish Fed meeting resulted in an eventful close to an otherwise slow session. Despite refraining to put down his "dot plot", Kevin Warsh declared its strong commitment to bring down inflation and thereby muted all concerns about a possible political tie to Trump and a softer policy stance. Rates sold off with the 2Y UST up 17bp at the most while the USD strengthened significantly with EUR/USD breaking below 1.15 before grinding higher again. Scandies took a hit following the Fed announcement with USD/SEK showing the largest 1-day increase since the tariff announcement by Trump more than a year ago. The Riksbank left its policy rate unchanged yesterday but sees a somewhat larger probability for a hike later this year. Today the central bank bonanza continues, and we expect Norges Bank, the SNB and the Bank of England all to stay on hold. We start the morning on a positive risk-sentiment amid news of Donald Trump having signed an interim deal to end the war with Iran and to reopen the Strait of Hormuz.