Weekly Global Economic Outlook and Commentaries, Week 25, 2025

Global Economic Review

United States: Inflation Eases, Fed Holds Steady

The latest U.S. reports delivered welcome relief on the inflation front. Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) in May surprised to the downside, alleviating near-term concerns about tariff-induced price spikes. The headline and core CPI each rose by just 0.1% month-over-month, supported by lower gasoline prices and moderating services inflation.

Core goods inflation—where tariffs typically bite hardest—fell 0.04%, suggesting that firms are absorbing costs or front-loading inventories rather than passing them on to consumers. PPI growth remained contained, with core final demand for goods up only 0.2%.

Sentiment indicators also improved following signs of U.S.-China trade de-escalation. The NFIB Small Business Optimism Index rebounded to 98.8, while the University of Michigan Consumer Sentiment Index edged up to 60.5, still subdued by historical standards but on the rise.

Despite these gains, analysts caution that tariff-related pressures could return later this year. For now, with inflation near the Fed’s 2% annualized core PCE target, the Federal Reserve is widely expected to leave interest rates unchanged at its upcoming meeting, maintaining a strictly data-dependent approach.

 United Kingdom: Growth Wobbles, Earnings Cool

Early indications for Q2 in the U.K. appear weak. April GDP fell by 0.3%, driven by contractions in industrial production (−0.6%), manufacturing (−0.9%), and services (−0.4%). These declines underscore lingering tariff-related uncertainties and other macro headwinds.

Labor-market metrics were similarly mixed: average weekly earnings growth slowed more than anticipated to 5.3%, and underlying pay (excluding bonuses) decelerated as well. Softer wage momentum reinforces expectations that the Bank of England will pursue gradual easing if economic pressures persist.

Europe & Scandinavia: Mixed Inflation Trends

In Norway, headline CPI climbed to 3.0%, while core inflation eased to 2.8%—both still above Norges Bank’s 2% target. Given ongoing volatility, markets continue to price in a 25 bp rate cut in Q3, which would lower the policy rate to 4.25%.

Latin America: Diverging Inflation and Policy Paths

• Mexico: May headline inflation ticked up to 4.42% YoY (core 4.06%), exceeding Banxico’s 3% ± 1% target. However, with GDP projected to contract 0.4% in 2025, analysts expect a 50 bp rate cut this month—to 8.00%—and another to 7.50% by Q3.
• Brazil: May CPI fell to 5.32% YoY, signaling disinflation. Yet ongoing fiscal risks and inflation above the BCB’s 4.5% tolerance band point to a 25 bp Selic hike to 15.00% at the next meeting.
• Colombia: Inflation eased more than forecast on both monthly and annual bases, reinforcing expectations for a 25 bp rate cut to 9.00% in late June.

Key Takeaways

• Inflation has moderated in the U.S. and much of Latin America, temporarily easing pressure on central banks.
• Growth concerns have emerged in the U.K. and Mexico, with early indicators pointing to a sluggish Q2.
• Monetary policy divergence is likely to persist: many developed economies will hold or ease rates, while Brazil remains on a tightening path.
• As tariff effects unfold and global demand shifts, the coming weeks will be critical in determining whether inflation stays contained or embarks on a renewed ascent.

U.S. Economic Outlook – Week 25, 2025

Retail Fatigue, Industrial Stagnation, and Housing Headwinds Shape the Outlook

As we enter the 25th week of 2025, recent data suggest the U.S. economy is in a shallow‐growth phase, with consumer demand softening, manufacturing momentum waning, and housing activity under pressure. Although inflation remains under control for now, broader indicators continue to signal caution.

Consumer Spending: Warning Signs Beneath the Surface

April retail sales rose a modest 0.1%, slightly above forecasts but offering little comfort. The strength seen in March—likely driven by a pre‐tariff demand surge—has not fully reversed, pointing to some residual momentum. However, the “control group”—a purer gauge of core spending—declined 0.2%, indicating mounting consumer fatigue.

The 90‐day de‐escalation of U.S.–China tariffs has temporarily eased pressures, but a substantial 30% tariff remains, leaving uncertainty elevated. While household finances are generally solid, the soft core reading suggests discretionary spending is under strain.

Looking ahead, May retail sales are forecast to decline 0.5%, largely due to a sharp drop in auto purchases. Excluding autos, sales are expected to rise 0.2%, suggesting consumers are slowing but not yet pulling back entirely.

Industrial Production: A Sector Losing Steam

April industrial production was flat overall, but manufacturing output contracted 0.4%—its steepest decline in seven months. Motor vehicle and parts production fell 1.9%, and electronics output slipped 0.7%, both vulnerable to supply‐chain disruptions and tariff uncertainty.

With the ISM production index in contraction at 45.4 in May, hopes for a near‐term rebound are dim. For May, production is expected to remain unchanged, with capacity utilization hovering around 77.7%, reflecting a stagnant industrial sector.

Housing: Multifamily Rebound Can’t Offset Broader Slowdown

April housing starts rose 1.6%, driven by a 10.7% surge in multifamily construction, while single‐family starts fell 2.1%. However, year-to-date starts remain 1.6% below last year’s pace, confirming a broad slowdown in residential buildings.

Building permits—a leading indicator- dropped 4.7%, and the NAHB builder sentiment index plunged to 34 in May. Mortgage rates remain elevated by nearly 7%, deterring new buyers and suppressing demand. For May, housing starts are projected to hold at a 1.364 million annualized pace as builders proceed cautiously amid affordability challenges and economic uncertainty.

Policy Outlook: Fed Holds, Markets Watch for Clues

With inflation cooling and growth slowing, the Federal Reserve is expected to keep rates steady at its upcoming meeting, maintaining a data‐dependent stance. Tariff developments and geopolitical risks remain key downside threats. If consumer confidence deteriorates further and business investment stalls, growth could dip below trend in the second half of 2025, increasing pressure on the Fed to adjust its policy stance later in the year.

FOMC Meeting Preview (June 17–18, 2025)

Markets are virtually unanimous that the Fed will maintain its policy rate at 4.25–4.50%. Fed funds futures (CME FedWatch) assign a 99.6% probability of no change, and a Reuters poll shows 103 of 105 economists expect a pause at the June 17–18 meeting. Consensus forecasts assume the Fed’s dot plot will remain unchanged, with policymakers still anticipating two 25 bp cuts later this year. Any surprise would likely come as a hawkish or dovish nuance in the statement or projections—for instance, unwinding tariffs or a Middle East shock could test the Fed’s resolve—but virtually no one expects a June hike, and only a handful see an early cut. About half of economists now project the first rate reduction in September. In short, markets are pricing a pause, with attention focused on clues about the timing of future cuts.

Fed Commentary & Key Themes

Inflation: Still Above Target

Core PCE inflation has eased from post-pandemic highs but remains near 2.5%, above the Fed’s 2% goal. Officials are expected to describe inflation as “somewhat elevated,” warn that lingering tariffs pose upside risks, and flag the potential for higher prices if trade tensions re-escalate.

Labor Market: Strong but Cooling

The unemployment rate has held around 4.2%, close to full employment. Fed speakers will emphasize solid job growth and low unemployment, yet may note early signs of softening, such as rising initial claims. Forecasts could nudge the year-end unemployment rate up slightly, to approximately 4.5% by late 2025.

Growth Outlook: Muted

Economists anticipate U.S. GDP growth of about 1.4% for 2025. The Fed’s updated projections (SEP) are expected to trim March estimates—EY forecasts Q4 2025 GDP at roughly 1.2% YoY (down from 1.7%). Officials will likely underscore headwinds from tariffs, trade-policy uncertainty, and tighter fiscal policy.

Fed Stance: “Cautious Patience”

Chair Powell is expected to maintain a measured, data-dependent tone, continuing the “wait-and-see” approach. The statement will reaffirm that policy is on hold and that risks to both inflation and unemployment have risen amid ongoing uncertainties. Powell may reiterate the Fed’s 2% inflation target and suggest a shift toward more flexible inflation targeting for greater agility. Overall, anticipate a neutral to slightly dovish tilt, highlighting persistent inflation and trade risks but stopping short of signaling imminent cuts.

Wall Street and the US Dollar!

Impact on U.S. Equities

With a Fed pause largely priced in, equity markets will hinge on fundamentals and sentiment around the meeting. May’s rally was broad-based: the S&P 500 climbed sharply, with 10 of 11 sectors posting gains (healthcare was the only laggard).

Tech & Growth: Rate-sensitive, high-growth sectors led the advance. The “Magnificent 7” tech names rebounded by roughly 13.5% in May. As long as rates remain stable—or begin to ease—these high-P/E stocks should retain support. Any dovish Fed tone (hinting at future cuts) would likely further propel tech and consumer-discretionary shares.

Defensive & Value: Conversely, defensive and value sectors may underperform in a risk-on environment. Healthcare stocks slid about 5.6% in May amid policy uncertainty, while utilities and consumer staples typically lag during rallies. Financials present a mixed picture: banks benefit from a steeper yield curve when rates stay elevated, but if the Fed signals imminent easing and the curve flattens, their margins could come under pressure.

Sentiment: Investor sentiment is cautiously optimistic. The S&P 500 hovers near all-time highs, yet strategists warn the rally could be “vulnerable” to any hawkish surprise. A neutral or slightly dovish Fed outcome should support ongoing momentum and keep the bull market intact. By contrast, a hawkish tilt might trigger profit-taking. Technically, the S&P 500’s first support lies around 5,800, with resistance near 6,000; indicators suggest limited upside and potential consolidation.

USD and FX Outlook

Currency markets have already factored in eventual Fed easing, leaving the dollar on the defensive ahead of the meeting.

• Dollar Weakness: The DXY index recently dipped below 98—a multi-year low—on softer inflation and labor data, with futures implying 1–2 quarter-point cuts by year-end. In this environment, a neutral Fed decision is unlikely to reverse the dollar’s recent downtrend.
• Fed Hold Scenario: If the Fed holds rates and maintains a balanced, data-driven tone, the dollar may drift lower absent fresh hawkish cues. Markets expect the first cut no earlier than September, so without surprises, USD pressure is likely to persist, especially if safe-haven flows abate.
• Dovish Surprise: A clear dovish signal—such as explicit forward guidance on cuts—would weaken the dollar further.
• Hawkish Surprise: Conversely, emphasizing upside inflation risks (tariffs, oil) or new geopolitical shocks could bolster USD, JPY, and CHF as safe havens.

Near-Term FX Reaction: A neutral-to-dovish Fed hold would probably keep EUR/USD and GBP/USD bid, extend recent gains, while modestly weakening USD. Should the Fed lean hawkish or risk aversion spike, pairs like USD/JPY and USD/CHF may see renewed support.

Technical Note: On the daily chart, the USD index’s downtrend shows signs of pausing—RSI has bounced off 30, and on-balance volume is rising, suggesting growing demand. The 50-day EMA near 100 is key resistance; any breakout above it could open the door to further gains.

Bank of England and UK Economy!

The Bank of England meets on Thursday, June 19, 2025, to set its policy rate. After a 25 bp cut in May, analysts overwhelmingly expect the Bank Rate to remain at 4.25%. In a Reuters poll of 60 economists, all foresee no change in June, with the first 25 bp cut penciled in for August and another by year-end.

Major bank forecasts echo this consensus:

• UBS anticipates a 7–2 hold vote (only Dhingra and Taylor dissenting) and expects two further 25 bp cuts in August and November, bringing the rate to 3.75% by end-2025.
• Bank of America likewise projects a 7–2 split and no change.
• Goldman Sachs also foresees steady, quarterly easing.

Market pricing in swaps and polls assigns a 90–95% probability of a hold on June 19, with forward curves implying roughly 50 bp of cuts by year-end. Barclays calls June’s decision a “foregone conclusion,” shifting market focus to guidance ahead of August. Analysts such as Danske Bank explicitly forecast a hold now and cuts later, aligning with Bloomberg’s collective view that all 60 economists expect rates to remain at 4.25%.

Although a June break is almost certain, slowing growth and rising unemployment raise the odds of future cuts. Should the Bank surprise with a reduction, it would signal mounting downside risks.

Economic Guidance: Inflation, Labor, and GDP

With a pause all but guaranteed, attention will turn to the Bank’s commentary:

 Inflation: April CPI stood at 3.4%, with May expected near 3.3%. Core and services inflation remained elevated at 5.4% in April, but appears to have peaked. The May Monetary Policy Report projects CPI to peak around 3.5% in Q3 2025 before easing toward 2% by 2026. The Bank is likely to stress that disinflation is underway, but underlying pressures—particularly in housing, utilities, and services—remain sticky.

Labour Market: Unemployment has risen to 4.6% (its highest since 2021), payrolls fell by about 109,000 in May, and vacancies continue to decline. Private-sector wage growth eased to around 5.0–5.2% YoY (down from 7% in 2023). The MPC will note the cooling labour market but may warn that further cuts should await clearer evidence of sustained wage moderation.

GDP Outlook: Q1 2025 output grew only 0.7% annualized before a 0.3% drop in April—the largest monthly fall since 2023. Trade shocks and fiscal tightening remain headwinds. The Bank’s forecasts envisage only 1% GDP growth in 2025. The statement is likely to acknowledge this lacklustre performance, downgrade previous optimism, and highlight downside risks from tariffs and weaker global demand, underscoring the need for an accommodative policy stance.

Market Impact

Sterling (GBP)

Expected hold-or-dovish messaging should weigh on sterling. Many analysts remain negative on GBP even if June’s decision goes as anticipated. Danske Bank forecasts a muted immediate reaction but warns that “elevated uncertainty” and the prospect of further cuts will act as a headwind, projecting EUR/GBP toward 0.87 over the next 6–12 months. IG cautions that any surprise easing or dovish guidance would “significantly weaken sterling.” Indeed, GBP/USD has traded lower this week on softer U.K. data, reflecting renewed dovish bets. In the short term, we expect GBP/USD to trade around $1.34–$1.37 unless BoE rhetoric deviates markedly from market pricing. Overall, a neutral decision combined with hints of future cuts suggests the pound may underperform other major currencies in the near term.

UK Equities

U.K. stocks have held up well, buoyed by strong Q1 earnings and easing trade tensions, which sent the FTSE 100 to record highs. Sentiment remains cautiously optimistic: investors welcome looser policy—especially in consumer sectors—but remain mindful of inflation and geopolitical risks.

• Policy Signals: A dovish tilt (emphasizing cuts ahead) would likely boost sentiment further, while any lingering hawkish tone could temper the rally.

Sector Impacts:

·      Financials: May tread water if rates plateau; a dovish shift could squeeze margins, though many banks have hedged.

·      Defensives & Utilities: Likely to rebound as rate pressure eases.

·      Tech & Growth: Could underperform if U.S. Fed policy, rather than BoE guidance, dominates markets.

Overall, a dovish hold is expected to reinforce the rotation into domestically focused, rate-sensitive stocks (housing, small-caps) at the expense of high-rate-carry sectors—a trend already evident in June trading. Short-term FX moves should be limited by the anticipated hold, though dovish hints could weaken GBP crosses. Equity investors will view a hold as mildly positive, avoiding a policy shock, while looking for growth support; sectors like homebuilding have already rallied.

Technical Outlook

GBP/USD remains in a bullish uptrend, with the RSI above 55 and on-balance volume rising, confirming sustained demand for the pound.

Gold Weekly Market Outlook

The Fed meeting (June 17–18) is the main catalyst for gold this week. Markets expect the Fed to hold rates steady, maintaining a “wait-and-see” stance amid lingering trade and tariff pressures. This neutral-to-mildly hawkish bias presents a headwind for bullion.

U.S. Inflation & Rate Expectations

May’s CPI rose just 0.1% month-over-month (vs. 0.2% forecast), bringing year-over-year inflation into the low-2% range. Cooler inflation increased the odds of rate cuts later in 2025, with markets assigning over 60% probability to a September cut. Subdued inflation typically lowers real yields, supporting gold, while any renewed price pressures could push Treasury yields higher and weigh on bullion.

Dollar & DXY

The U.S. dollar has weakened sharply this year, with the DXY down about 9% year-to-date and hovering near three-year lows (~98.6). A softer dollar makes gold more attractive globally. However, strategists caution the greenback remains modestly “overvalued,” and large fiscal deficits could cap further declines. Hawkish Fed signals or stronger dollar data could limit gold’s upside, whereas further dollar weakness would likely drive prices higher.

U.S. Treasury Yields

The 10-year Treasury yield stands near 4.4%, up from ~2% a year ago, while TIPS-implied real yields hover around 2.1%. Gold generally moves inversely to real yields—if real rates stabilize or fall as Fed cuts loom, gold should benefit; conversely, unexpected spikes (from hawkish rhetoric or robust growth) would pressure the metal.

Geopolitical Factors

Heightened Middle East tensions have reinforced gold’s safe-haven appeal. Israeli strikes on Iran drove gold 1–4% higher on June 12–13, lifting XAU/USD to close near $3,433—a weekly gain of about 3.7%. Any escalation in global conflicts or trade disputes tends to spur gold buying, while easing risks can trigger profit-taking.

Technical Outlook

XAU/USD has cleared $3,400 and now faces resistance at $3,430–$3,450, with the all-time high near $3,500. Initial support lies at $3,380–$3,360; a break below that zone would expose $3,300. Momentum indicators—RSI near 62 and elevated MACD—signal overbought conditions, suggesting potential consolidation. Nonetheless, the uptrend remains intact, with the 50-day moving average sloping upward. A decisive breakout above $3,450–$3,500 on strong volume could open the door to new highs, while hawkish data or a USD rebound could pull gold back toward support.

Brent & WTI Oil Outlook – Week 25, 2025

Global crude markets remain under pressure as OPEC+ continues its gradual rollback of cuts. The group added back 411 kbpd in May and June and has approved the same increase for July, reinstating roughly 1.37 mbpd of production since April. Saudi Arabia and Russia now prioritize market share over price support, leaving only Saudi/UAE spare capacity (around 3–3.5 mbpd) as a meaningful buffer. Traders should expect OPEC+ to maintain this output trajectory but monitor compliance (notably in Iraq and Kazakhstan) and watch for surprise announcements.

Spare Capacity & Inventories

Outside OPEC+, only Saudi Arabia and the UAE have sufficient spare capacity to offset a major supply shock. Global spare capacity roughly equals Iran’s output (~3.3 mbpd), making any disruption in Iranian exports particularly consequential. In the U.S., crude stocks drew 3.6 mb last week (to June 6) versus a 2 mb consensus. Continued draws—especially if confirmed by API/EIA reports on June 17–18—would be bullish, whereas builds or weakening demand could cap prices.

Geopolitical & Supply Risks

Middle East tensions are injecting volatility. U.S. evacuations from Baghdad and Iran’s saber-rattling on June 11 drove oil up ~4% intraday, and Israel’s June 13 strike on Iran’s Natanz facility sent Brent/WTI about +7% on the day. While no exports have been halted, Iran’s 3.3 mbpd output and over 2 mbpd of exports could be jeopardized if conflict broadens. Traders must monitor any escalation—Houthi strikes, missile attacks on Gulf terminals, or renewed Russia sanctions, which could constrain up to 7.6 mbpd of exports—as these events would sustain a risk premium.

Demand Signals

U.S. fuel fundamentals show seasonal strength: last week’s significant crude draw and rising refinery runs point to tightening. Gasoline demand jumped to about 9.17 mbpd, reflecting early summer travel. Chinese PMI data remain weak (Caixin at 48.3 in May), indicating softer demand growth. The IEA has trimmed its 2025 demand-growth forecast to 0.74 mbpd, but any U.S.–China trade truce could briefly boost prices.

Technical Outlook (WTI)

Last week’s rally lifted Brent to $74.2 and WTI to resistance near $72.7, with next targets at $74.5 and $77–78. Support sits at $69.8, with deeper floors around $64. The RSI (~75) and rising OBV signal strong bullish momentum but also overbought conditions, suggesting a possible pullback or consolidation before new highs. A decisive break above $74 would open the door to $77–78, while a drop below $70 risks testing lower pivots.

Bitcoin (BTC/USD) Outlook

The Federal Reserve and its rate decision will be the key catalyst for the crypto market this week. Markets are nearly certain the Fed will hold its policy rate at 4.25–4.50% at the June 17–18 FOMC meeting. Fed funds futures imply no move in June, with the first cut now expected by September or later. This outlook reflects ongoing, though slowing, inflation. May’s CPI came in softer than expected (0.1% m/m vs. 0.2% forecast; 2.4% y/y vs. 2.5% est.).

Fed officials are cautious, as inflation and jobs data remain firm enough to delay any immediate cut. In practice, a steady—or mildly dovish—Fed would be neutral to positive for Bitcoin, since it can weaken the USD; a surprisingly hawkish tone (e.g., a stronger inflation outlook) could trigger a modest pullback. In short, the Fed is expected to pause, and markets are already pricing in multiple cuts by year-end (Sept/Dec), which, on balance, favors risk assets like BTC.

In other words, while the Fed is set to hold rates steady, underlying disinflation boosts Bitcoin’s medium-term macro outlook. Historically, falling inflation and eventual rate cuts have been bullish for Bitcoin—they encourage risk-taking and reduce bond yields, making an uncollateralized asset like BTC more attractive. As inflation cooled and markets priced in later cuts, the USD weakened to multi-year lows. In mid-June, Reuters noted the dollar index (DXY) at ~97.8, its weakest level since early 2022.

A weaker dollar makes dollar-priced assets (like BTC) relatively cheaper for global investors. Consequently, Bitcoin often rises when the dollar falls. Thus, current USD softness—driven by slowing inflation and Fed easing prospects—is a positive macro tailwind for BTC. Global liquidity appears to be increasing, another historically bullish factor for Bitcoin. Analysts find an 84% correlation between Bitcoin’s price and global M2 money supply. When central banks expand liquidity, Bitcoin tends to follow after a lag. With Fed futures signaling multiple cuts (and the ECB and BoJ also generally easing), global money supply growth is accelerating. A Bitwise report notes that recent dollar weakness has fueled rising money supply, “boding well” for Bitcoin. For example, an analysis cited by Nasdaq/Bitcoin Magazine projects BTC could retest its all-time high ($112K) by June 2025 if global liquidity continues to rise.

In summary, abundant liquidity and easing inflation are tailwinds. Investor sentiment, however, is mixed: risk-off cues (geopolitical tensions, trade uncertainty) still create caution. Overall, most indicators (e.g., the Crypto Fear & Greed Index) are neutral to slightly cautious, but they tilt toward “risk-on” if the Fed confirms future easing.

With RSI falling toward the 50 level and prices declining, the uptrend appears to be losing steam. A breach below the 100-day moving average would put the price under pressure, making a test of the 200-day MA near $88K more likely.