Powell Reaffirms Fed’s Caution on Rate Cuts Amid Political Heat and Tariff Uncertainty

Economic

Summary:

Federal Reserve Chair Jerome Powell reaffirmed the central bank’s commitment to containing inflation, emphasizing a “wait-and-see” approach toward interest rate cuts despite intensifying criticism from President Donald Trump...

Fed Holds Firm Against Political Pressure, Focuses on Data-Driven Policy

In testimony before the House Financial Services Committee on Tuesday, Federal Reserve Chair Jerome Powell delivered a measured but resolute message: the Fed is committed to maintaining price stability and will remain cautious before altering its policy stance. Despite rising political pressure, especially from President Trump, Powell reiterated that the central bank’s decisions are independent and will be guided solely by data.

Trump has escalated his public attacks on Powell, accusing him of being "dumb" and "hardheaded" for refusing to cut rates amid rising trade tensions. However, Powell made clear that “politics has no role” in Fed policy, emphasizing, “We’re doing our jobs.”

Tariffs: The Core Uncertainty Behind the Fed’s Policy Delay

The key issue restraining the Fed from acting is uncertainty around the inflationary impact of Trump’s tariff policies. Powell explained that the “ultimate level” and persistence of price increases due to tariffs remain unclear. While short-term effects typically include one-off price hikes, the Fed is watching for signs of sustained inflation acceleration that could justify a policy shift.

Powell warned that the Federal Open Market Committee (FOMC) has a duty to “prevent a one-time increase in the price level from becoming an ongoing inflation problem.” He highlighted that inflation is projected to rise modestly in May to 2.3%, with core inflation expected to reach 2.6% — both slightly above the Fed’s 2% target but still not alarming enough to prompt immediate action.

Labor Market Solid, Inflation Risks Balanced — No Rush to Cut

Powell characterized the U.S. economy as “solid,” with employment near full capacity. While inflation remains slightly elevated, he emphasized the Fed’s responsibility to balance the dual mandate of price stability and full employment. “Without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” he told lawmakers.

Some Fed officials — including Governors Michelle Bowman and Christopher Waller — have suggested that if inflation stays in check, they may support a July rate cut. However, Powell signaled the broader committee’s reluctance, noting that it will take more than one month of data to justify easing.

Market Implications: July Cut Unlikely, September More Probable

The futures market is currently pricing in only a 23% chance of a July rate cut, with stronger odds for a move in September. This aligns with Powell’s assertion that more time is needed to observe the economic fallout from tariffs and ensure inflation doesn’t spiral.

The Fed’s dot plot revealed a divided board: nine officials anticipate zero or one cut in 2025, while the remaining ten foresee two or more cuts. This internal divergence reflects how finely balanced the inflation-growth tradeoff is in the current environment.

Despite rising political heat, Powell’s testimony makes it clear the Fed is focused on its long-term credibility and macroeconomic stability rather than short-term pressure. With inflation data still within a manageable range and uncertainty over tariffs unresolved, the central bank is in no rush to cut rates. Investors and markets should expect the Fed to remain data-dependent, resisting premature action until inflation expectations and global risks become more predictable.

Source: CNBC

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Economic

Forex

Beijing Moves to Elevate the Yuan’s Global Profile

As the U.S. dollar suffers from heightened policy uncertainty and declining global confidence, China is intensifying efforts to promote the yuan as a viable alternative for international trade and finance. The People's Bank of China (PBOC), under Governor Pan Gongsheng, is leading initiatives to reduce reliance on what he calls a "single sovereign currency," a clear reference to the dollar. At the core of this strategy is the internationalization of the digital yuan, expanded access to Chinese financial markets, and greater use of the renminbi in cross-border payments and commodity pricing.

These efforts come at a moment of relative strength for China’s currency. The offshore yuan has appreciated over 2% against the U.S. dollar in 2025, while the dollar index has fallen over 9% amid investor unease with U.S. policy under President Trump, especially regarding tariffs and sanctions.

Strategic Access for Foreign Institutions and Commodities Pricing Power

China is targeting the futures and commodities markets as key channels for yuan internationalization. In recent weeks, three major Chinese exchanges—Shanghai, Dalian, and Zhengzhou—have opened up 16 additional futures and options contracts to qualified foreign institutional investors, including contracts in natural rubber, lead, and tin. These additions are part of a broader campaign to expand foreign investor access to China’s hedging tools and integrate the yuan into global commodity pricing systems.

The Shanghai Futures Exchange also announced plans to allow foreign currency collateral for yuan-settled trades—further smoothing access for global players.

Financial firms are slowly responding. Morgan Stanley’s Chinese subsidiary now offers brokerage services for commodity futures and plans to expand to equity and bond futures trading, after years of gradual regulatory approvals.

Despite these openings, structural barriers remain. China's capital controls and lack of legal transparency continue to deter deep foreign investment, limiting the yuan’s broader appeal compared to the dollar's unmatched liquidity and regulatory clarity.

Digital Yuan, Cross-Border Lending, and Bilateral Settlements

Beyond investment markets, Beijing is building out a parallel financial infrastructure to challenge dollar supremacy. The central bank has laid the groundwork for a digital yuan hub in Shanghai to support international transactions, while Chinese banks are increasingly using yuan in lending to emerging markets, especially as lower interest rates make it cost-effective.

The Cross-Border Interbank Payment System (CIPS) is also playing a growing role, providing an alternative to the SWIFT network and supporting bilateral trade in yuan with partners in Asia, Africa, and the Middle East. In February 2025, China allocated $100 billion in financing through Hong Kong to support yuan-denominated deals—further incentivizing global businesses to adopt the currency.

While China's push is strategic and steady, results remain mixed. According to SWIFT’s May data, the yuan accounted for just 2.89% of global payments, down from 5th to 6th place globally. In contrast, the U.S. dollar still dominated with 48.46% of all cross-border transactions, followed by the euro at 23.56%.

Dollar Weakness and Global Shifts Bolster China’s Timing

China’s de-dollarization drive coincides with broader shifts in Asia and the Global South. Geopolitical tensions, dollar volatility, and the rising cost of U.S. borrowing have prompted many countries to hedge against dollar exposure. President Trump’s tariff escalation and abrupt foreign policy decisions have only intensified the appetite for diversification, pushing more institutional money toward yuan-based assets.

State Street Markets’ proprietary data points to a sharp increase in institutional CNY inflows. According to senior EM strategist Ning Sun, institutional investors—still underweight in yuan—are now positioning more aggressively in CNY-denominated assets.

Progress, but Long Road Ahead

While China’s multi-pronged strategy is yielding incremental gains, experts remain cautious. As Matt Gertken of BCA Research notes, the yuan lacks the deep, open, and rule-of-law-based financial system that underpins the dollar’s dominance. Unless China can offer credible reforms to improve transparency, legal reliability, and capital mobility, the yuan's global role will remain significant but limited.

Still, with the global monetary order in flux and confidence in the dollar shaken, China’s window to reshape financial geopolitics is as wide as it has ever been. The challenge now is execution and trust.

Source: CNBC

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Commodity

Australian Farmers Reap Benefits from Historic Lamb and Mutton Prices

Australian sheep farmers are witnessing a historic boom as the price of heavy lambs soared to nearly A$11 ($7.14) per kilogram last week—a 50% jump from the same period in 2024. This marks a significant moment for the nation’s agricultural sector, especially as Australia cements its role as the world’s top sheep meat exporter.

According to Matt Dalgleish, analyst at Episode 3, the surge is driven by increasing export demand, limited global supply, and Australia’s expanding market share. “Until the underlying pressure of limited supply and strong growth in demand changes, there should be more good times ahead for Australian producers,” he noted.

Export Volumes and Values Hit Record Levels

Australian export volumes reached 702,000 metric tons in 2024, worth $3.6 billion, representing a near 40% increase from the previous peak in 2019. In the first four months of 2025 alone, shipments rose 10% year-over-year, showing strong momentum as international buyers continue sourcing from Australia.

China remains the largest importer of Australian sheep meat, followed by the United States, the European Union, Britain, and Middle Eastern countries. Demand is being bolstered not just by population growth but also by substitution effects: consumers, especially in the U.S., are turning to lamb and mutton as beef prices remain elevated.

New Zealand’s Declining Output Creates a Strategic Window

Australia’s boom coincides with structural stagnation in New Zealand’s sheep industry. As Rabobank’s Angus Gidley-Baird explains, “Its production is stagnating or retracting. So any growth in global demand is Australia’s opportunity for the taking.” The number of sheep in New Zealand has steadily declined since 2012, largely due to the conversion of pastureland into pine plantations to generate carbon credits.

This structural shift means that while Australia’s sheep numbers have increased—enabling producers to meet processor demand—New Zealand’s global market share has been gradually eroded, consolidating Australia’s export dominance.

Continued Growth with Caution on Supply Constraints

Looking forward, analysts expect sheep meat prices to remain strong, albeit with seasonal fluctuations. The main tailwinds include high global demand, constrained rival supply, and favorable trade conditions. However, to sustain growth, Australia must manage challenges such as processor capacity, climate risk, and maintaining animal health standards amid scaling operations.

For now, though, the combination of favorable market dynamics and declining competition places Australia in a rare and enviable position within global agriculture: leading a high-value export market with strong forward momentum.

Source: Reuters

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Economic

German Export Outlook Weakens Under Tariff Cloud

The Ifo Institute reported on Wednesday that its export expectations index for Germany fell to -3.9 in June from -3.0 in May. This decline reflects a growing sense of unease among exporters, who remain wary of U.S. President Donald Trump’s push for reciprocal tariffs and ongoing trade tensions with the European Union. Klaus Wohlrabe, head of Ifo surveys, emphasized that the lack of a clear resolution is weighing on sentiment: “The tariff threats from the U.S. are still on the table. An agreement between the EU and the U.S. has yet to be reached.”

Germany’s export-dependent economy is particularly sensitive to changes in global trade policy, and the auto industry—which accounts for a significant portion of German exports—is especially exposed. Many German manufacturers have built production models around stable transatlantic trade, making them vulnerable to tariff shocks.

Negotiations with U.S. Yield Limited Progress

Though negotiations are ongoing, European officials have expressed growing skepticism that a comprehensive deal can be reached in the near term. According to sources familiar with the discussions, both sides may have to settle for a 10% reciprocal tariff baseline—significantly higher than current levels and a departure from long-standing low-tariff norms under previous trade frameworks.

President Trump’s strategy appears focused on shrinking the U.S. trade deficit with the EU, particularly targeting industries like automobiles and machinery where German firms hold large surpluses. The EU has so far resisted unilateral concessions, aiming instead for a broader resolution, though the clock is ticking as the July 9 expiration of the current tariff pause approaches.

Short-Term Caution, Long-Term Structural Concern

With no imminent resolution in sight, German exporters are bracing for a more difficult second half of 2025. The continued slide in Ifo’s export expectations signals caution about new orders and investment in trade-reliant sectors. If talks break down entirely or if the U.S. unilaterally enforces higher tariffs, Germany could face sharper slowdowns in manufacturing, particularly in autos, chemicals, and industrial machinery.

In the broader context, this development adds to Europe’s economic challenges as growth remains sluggish, inflationary pressures diverge across the eurozone, and global demand remains fragile. Germany’s export pessimism could ripple across the EU if the tariff standoff becomes prolonged or escalates into broader retaliatory measures.

Source: Reuters

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Golden Gleam

Economic

Commodity

Gold (XAUUSD) quotes are forming grounds for a rebound, although the outlook remains mixed. The gold (XAUUSD) forecast for today, 25 June 2025, suggests a potential recovery with growth towards 3,350 USD.

Gold (XAUUSD) prices strengthened to 3,300 USD, rebounding from a two-week low. Discover more in our analysis for 25 June 2025.

XAUUSD forecast: key trading points

●Gold (XAUUSD) prices are recovering after hitting a two-week low

●The Fed interest rate outlook could be a growth point

●XAUUSD forecast for 25 June 2025: 3,350

Fundamental analysis

Gold (XAUUSD) quotes recovered to 3,300 USD per troy ounce on Wednesday, moving away from their lowest level in two weeks. Market participants are evaluating the durability of the ceasefire between Iran and Israel.

Today, preliminary US intelligence assessments revealed that the recent strikes on three Iranian nuclear sites only temporarily stalled Tehran's nuclear programme, which fuels concerns over possible escalation.

The ceasefire brokered by the US appears fragile, with both parties accusing each other of attacks shortly after the truce began.

On the monetary policy front, US Federal Reserve Chairman Jerome Powell said that interest rates will likely remain unchanged until the impact of new tariffs becomes clearer. However, he did not rule out a possible rate cut in July.

These comments contrast with statements from other Fed officials who earlier supported policy easing amid signs of slowing inflation and a weakening labour market.

The gold (XAUUSD) forecast is mixed.

XAUUSD technical analysis

On the H4 chart, gold (XAUUSD) is recovering, although sellers still hold the initiative. XAUUSD rebounded from the lower boundary of the descending channel at 3,295, but to strengthen this momentum, prices must consolidate above 3,350. This would also confirm the emergence of bullish sentiment in the market. If so, the next upside target could be 3,393.

If the rebound fails to gain traction, the market may retreat back to 3,295, increasing market pressure.

Source: RoboForex

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Economic

Stocks

Regional Markets Respond to Ceasefire and Fed Signals

Investor relief over the Israel-Iran ceasefire and comments from Federal Reserve Chair Jerome Powell helped lift Asian equities midweek. The Nikkei 225 gained 0.3%, the Hang Seng Index rose 0.9%, and Taiwan's Taiex advanced 1.1%. Mainland China's Shanghai Composite added 0.5%, while South Korea's Kospi rose 0.2%. Australia’s ASX 200 was up 0.1%, and India’s Sensex rose 0.7%. Only Bangkok’s SET saw a modest decline of 0.4%.

The regional uptick followed a strong U.S. session where the S&P 500 rose 1.1% to 6,092.18—just 0.8% shy of its all-time high—while the Dow gained 1.2% and the Nasdaq surged 1.4%. The rally was fueled by both the ceasefire announcement and optimism that the Fed will remain patient on interest rate decisions.

Oil Retreats Supports Risk Sentiment, Fed Leeway

Brent crude and West Texas Intermediate both bounced over 1% on Wednesday morning after falling sharply by around 6% on Tuesday, bringing prices below pre-conflict levels. Brent traded at $66.95 and WTI at $65.16 per barrel. Analysts attributed the sharp decline to the de-escalation of military tensions and the assumption that energy supply routes—especially the Strait of Hormuz—would remain open.

Lower oil prices ease inflationary pressure, potentially giving central banks more room to cut rates. Powell, in testimony to Congress, reiterated a cautious stance, noting the Fed is “well positioned to wait” before altering policy, a message that counters Trump’s calls for immediate rate cuts.

Focus Shifts to Tariffs and Consumer Confidence

With energy markets stabilizing, attention is turning toward trade policy, particularly U.S. tariff enforcement. Trump’s recent moves—both announcing a ceasefire and suggesting openness to trade adjustments—have left markets wondering how future tariff hikes might impact inflation and global growth.

Despite the easing in oil prices, the Fed remains wary. Powell emphasized the need to observe the broader economic impact of higher tariffs. Consumer confidence data released Tuesday came in below expectations, hinting at underlying fragility in household sentiment.

Risk-On Mode Returns, But Fragility Lingers

While markets have welcomed the ceasefire and Fed patience, risks remain. The ceasefire between Iran and Israel, while holding for now, is fragile. Furthermore, the expiry of the U.S.’s tariff pause on July 9 may reignite trade uncertainty, especially if retaliatory measures follow.

Still, the easing of geopolitical tensions and signs of inflation stabilization are shifting the macroeconomic outlook toward cautious optimism. With U.S. equities nearing record highs and Asian markets rebounding, investors appear willing to reengage in risk assets—at least temporarily—until the next round of economic data or geopolitical developments forces a reassessment.

Source: AP

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Economic

Inflation Eases Sharply, Strengthening Monetary Easing Expectations

Australia’s monthly inflation data for May revealed a significant cooling of price pressures, with both headline and core measures falling below expectations. The consumer price index rose just 2.1% from a year earlier, down from April’s 2.4%, and lower than the 2.3% forecast. More notably, the RBA’s preferred trimmed mean core inflation gauge dropped to 2.4%—the lowest since late 2021—moving beneath the central bank’s 2–3% target midpoint.

On a monthly basis, CPI declined 0.4%, driven by easing fuel and housing costs. Services inflation, a stubborn contributor to core inflation, also decelerated to 3.3% from 4.1%, while rent growth moderated to 4.5%, its slowest pace since December 2022. Prices for new dwellings were flat, and holiday-related costs saw a sharp monthly drop of 7% following a seasonal spike.

Markets Firm Up July Rate Cut Bets as Growth Slows

The inflation report significantly boosted rate cut bets. Interest rate swaps now imply a 90% probability of a 25-basis-point cut at the RBA’s July 8 policy meeting, up from 81% prior to the release. Analysts from TD Securities, citing the “big downside miss” in the inflation data, moved their forecast for the next cut forward from August to July and revised their terminal rate estimate from 3.35% to 3.10%.

Economists warn that faint consumer demand and sluggish GDP growth in Q2 suggest the RBA has room—and reason—to act swiftly. “We are tracking faint consumption and growth in Q2, and hence, the bank may do well to frontload the cut to July,” said Krishna Bhimavarapu of State Street Global Advisors.

Domestic Resilience Meets Global Headwinds

Despite cooling inflation, Australia’s labour market has shown resilience. The unemployment rate remains low at 4.1%, and job postings are holding above pre-COVID averages. Wage growth, particularly in the private sector, has stayed moderate, allowing the RBA to shift focus from inflation control to growth support.

Still, the broader context is marked by uncertainty. The July 8 decision will arrive just before a major international policy shift—the expiration of the U.S.’s 90-day pause on reciprocal tariffs. With global trade frictions still unresolved and geopolitical tensions lingering, the RBA may find additional justification for a preemptive policy easing.

July Cut Highly Likely, Further Easing Expected

With headline and core inflation trending down, and services inflation showing clear signs of deceleration, the case for further easing is now stronger than at any time since the start of the rate-cut cycle in February. Markets are pricing in as much as 78 basis points of total easing by year-end, with further reductions likely in August and later depending on the trajectory of global trade, domestic growth, and labor market stability.

As inflation retreats from the spotlight, the RBA’s primary challenge now shifts to fostering a fragile recovery and shielding the economy from escalating global risks.