June 2026 Monthly

The world enters June optimistic that an extended ceasefire in the Middle East is possible. The front month Brent oil futures contract finished May at its lowest level in a little more than five weeks. Major US and Japanese equity indices are at record highs. After a dramatic jump, European benchmark 10-year yields pulled back mostly 15-25 bp in May, although the 10-year US Treasury yield was flat. Geopolitics remain unsettled. Four developments in particular deserve careful attention, not because they are new, but because of their ability to impact the investment climate. 

Leaving aside the Reserve Bank of New Zealand, which announced a hawkish hold in late May, the other central banks meet in June. The Bank of Japan and the European Central Bank are the most likely to hike rates. Beijing continues to facilitate a modest appreciation of the yuan, which is now at three-year highs against the dollar and also is appreciating against the other G10 currencies and most of the currencies in Asia. The yuan’s advance does not appear complete. 

The Strait of Hormuz: Adaptation Is Not Resolution

The Strait of Hormuz remains closed, and the ceasefire surrounding the conflict that produced that closure is better described as a pause than a settlement. Polymarket currently puts the probability of the Strait reopening by the end of June at roughly 38%, which means the base case, as the crowd sees it, is that the world's most critical energy chokepoint remains shut as we move into the summer. That is not a tail risk. That is the central scenario.

What has prevented this from becoming a full-blown energy crisis is a combination of American commercial opportunism and Chinese demand restraint. The United States, now a top-tier exporter of crude and refined products, shipped record volumes as the price signal made doing so irresistible. China, wrestling with slower domestic growth and large inventories, dialed back imports with a discipline that took some of the heat off global prices. Neither acted out of multilateral generosity; both responded to their own incentives. But there seems to be limits to these efforts as US inventories dwindle and Beijing may want to preserve a large buffer. 

The net effect was a market that bent without breaking. But tanker insurance remains punitive, supply chains remain permanently rerouted, and the cost structure of global energy supply has shifted to a new and more expensive equilibrium. Planning assumptions built on a swift normalization of Gulf energy flows and other commodities are not supported by the evidence.

UK Politics: The Risks of What Comes After Starmer

The challenge to Keir Starmer has moved well past the rumor stage. The local election results were seen as a genuine repudiation and calls from within the Labour Party for his resignation are now open and organized. A leadership change in the coming months is more likely than not.

The problem is that the internal Labour critics who are most eager to push Starmer out appear to have thought carefully about the removal but not about the consequences. The political terrain they would inherit is punishing. Reform UK has demonstrated real organizational capacity on the populist right. The Greens are not a protest movement. They represent a durable and growing coalition of younger, urban voters who will not automatically return to Labour because the leadership tilts leftward. And the Liberal Democrats are still pushing hard. 

A successor more ideologically comfortable with the parliamentary party's instincts might consolidate internal support while simultaneously widening vulnerability to the other parties. exposure. The June 18 byelection in Makerfield will determine whether the current mayor of Manchester will spearhead a leadership challenge. For sterling and UK assets more broadly, the question is not who wins the internal contest but whether any plausible iteration of this government can credibly address a stalling economy and a public whose patience has been exhausted. The honest answer is that it is not obvious, and the market is only beginning to price in that ambiguity.

The Bank of Japan: Intervention Without an Anchor

The Bank of Japan intervened twice in recent weeks to arrest yen weakness, and on both occasions it did so without any accompanying signal of a policy shift. The most authoritative data from the BOJ points to purchases of JPY11.7 trillion (about $73.5 bln) The operations were tactical — designed to slow a disorderly market move rather than announce a new regime. Markets understood this perfectly well, which is precisely why speculative short-yen positioning rebuilt itself with remarkable speed after each operation.

The BOJ's difficulty is structural. The gap between Japanese rates and global rates continues to provide a powerful and persistent incentive to sell yen, and intervention without a credible policy anchor is, at best, a holding action. Sophisticated participants know this, and the positioning data suggests they are already preparing to test the BOJ again. 

The central bank may find itself defending a line it never explicitly drew, against a market that has both the conviction and the capital to push hard on it. At the same time, despite price pressures, which appear to be moderating, the economy appears to have begun Q2 on solid footing after stronger than expected growth in the first quarter (0.6%). A BOJ rate hike in June is likely. 

June's Central Bank Calendar: Divergence Without Clarity

Every G10 central bank meets in June except the Reserve Bank of New Zealand, and the policy landscape they collectively present is anything but synchronized. Swaps markets assign around 80%-90% probability of rate hikes from both the ECB and the Bank of Japan, while the market is pricing in practically now chance that the Federal Reserve, the Bank of Canada, the Reserve Bank of Australia, the Swiss National Bank change rates. The swaps market discounts less than a 10% chance of BOE move, the market is pricing in a little better than a 1-in-4 chance that Norway's Norges Bank hikes and less than a 5% chance Sweden's Riksbank does. 

The divergence is real, but it does not resolve into a clean narrative. The ECB confronts persistent services inflation that has proven more stubborn than its models anticipated. The BOJ faces a currency dynamic that threatens to import inflation faster than domestic policy can contain it. The Fed and the SNB, by contrast, are watching domestic conditions soften and are in no hurry. What links all four is that their forward guidance is losing traction precisely because they are all, to varying degrees, data-dependent, which is the institutional equivalent of admitting that no one is quite sure what comes next. June will produce decisions. It is less likely to produce clarity.

The through-line connecting these four fault lines is straightforward: the surface has stabilized without the underlying tension dissipating. That distinction matters more than it might appear, and investors and business leaders who mistake the current relative calm for resolution may find June considerably more consequential than they anticipated.

Bannockburn World Currency Index

Bannockburn's World Currency Index is composed of the currencies of the dozen largest economies--half of which are from high-income countries and half from emerging markets. It eked out a negligible gain in May, the sixth monthly advance in the past seven months. Yet, all of the currencies from high income countries fell against the dollar and half of the emerging market components fell. By GDP weighting, the three currencies that rose (the Chinese yuan, the Russian ruble, and the Mexican peso) account for about 25% of the index. The US dollar itself is around a third of the index, and that contributes to the low vol nature of the BWCI. 

Three of G10 components of the BWCI fell by more than 1% (Japanese yen, Canadian dollar, and British pound). The euro lost a more modest 0.55% and the Australian dollar was off about 0.20%. Among the emerging market components, the South Korean won fell by around 1.80% and the Brazilian real tumbled a little less.

In early May, BWCI took out the 2025 high but stalled near the late 2024 high. Yet, price action looks constructive and that is consistent with our bearish outlook for the greenback. BWCI rose a little more than 1% in the year through May. We envisage this year's gains to be in line with last year, when it appreciated by 3.7%, which would bring the BWCI to the high from early 2024. 

U.S. Dollar:  The greenback rallied in the first month of the Middle East war, came off in April and mostly remained in the March-April range in May. The prospect for an extended ceasefire and the re-opening of the Strait of Hormuz can weigh on the dollar in the coming weeks. This aligns with our reading of the technical condition of the market. The resilience of the US economy has been impressive, and the Atlanta Fed's model sees the economy tracking a little faster than 4% this quarter. While pending revisions, March and April jobs growth of a combined 300k increase was the best two months since the end of 2024. However, developments, like the falling order book in the manufacturing sector (PMI), the squeeze on households forcing a decline in savings, and the record-low consumer sentiment (University of Michigan) are worrisome in the coming quarters. The Federal Reserve will stand pat at the conclusion of the FOMC meeting on June 17. The meeting will draw much attention. It is the first meeting of a new era. Chair Warsh not only will hold a must-see press conference, but he will also be asked questions about the updated Summary of Economic Projections, for which he is a critic. Meanwhile, a Supreme Court decision about the president's attempt to fire Governor Cook may be handed down by month's end. 

Euro: The euro appears to have forged a base by $1.1575, near a technical retracement target of the recovery off the low of the year recorded in mid-April slightly above $1.14. Yet, it must overcome the May high, near $1.1700, to be significant. Expectations for an ECB rate hike at the June 11 meeting have been trimmed since being fully discounted at the end of April, but nearly 90%, it remains elevated. A move now would have the cover of the updated staff forecasts, which will likely include a bump in the March projection of 2.6% CPI this year and 2.0% next year. Another headwind for the euro is that sharp widening of the US two-year premium over Germany. It rose by almost 40 basis points to 160 bp, the most since last November. It pulled back to around 145 bp in the end of May. On the one hand, the euro's resilience is notable, but on the other hand, it could point to its vulnerability. Respect the price action. Lastly, the US has given the EU until July 4 to ratify and implement the trade agreement, threatening a dramatic increase in tariffs, including on autos). 

(As of May 29, indicative closing prices, previous in parentheses) 

Spot: $1.1661 ($1.1722) Median Bloomberg One-month forecast: $1.1694 ($1.1712) One-month forward: $1.1674 ($1.1738) One-month implied vol: 5.0% (5.8%)

Japanese Yen:  Official data confirms market suspicions that the Bank of Japan intervened in the foreign exchange market between late April and late May to sell JPY11.7 trillion o roughly $73.5 bln. The dollar was threatening the 2024 highs that were also met with material intervention. For nearly three years the dollar has been in a roughly JPY140-JPY160 trading range. Japanese officials are defending a floor for the yen, but they  ultimately may have bought time. Time for the Bank of Japan to raise rates. The swaps market has almost an 80% chance of a BOJ hike at the June 16 meeting. There is around a 60% chance of another hike before the end of the year. Time for the US yields to peak. The US 10-year yield, which the exchange rate is often highly correlated with, rose by about 80 bp since the Middle East War began. The US 10-year premium over Japan narrowed to around 180 bp in late May, the smallest in four years. Time for the improving external imbalance to have positive impact. Japan's rolling 12-month trade balance is likely to swing back into surplus for the first time since late 2021 in the coming months. The rolling 12-month current account surplus is at record levels. Yet the dollar finished May near its best level of the month and further intervention cannot be ruled out. 

Spot: JPY159.27 (JPY159.38) Median Bloomberg One-month forecast: JPY158.00 (JPY158.24) One-month forward: JPY158.88 (JPY158.98). One-month implied vol: 6.1% (7.3%)

British Pound:  After appreciating by 2.85% in April, sterling gave back nearly half in May. The Gilt sell-off, the poor showing of Labour in the local elections, and the political pressure on Prime Minister Starmer took a toll in the first half of the month. Sterling was turned back from the two-and-a-half-month high set on May 1 near $1.3660 and it was sold to almost $1.3300. Hopes of an extended ceasefire in the Middle East and the related recovery in the Gilt market helped sterling rebound a little above $1.3500. Expectations of the trajectory of BOE policy peaked on March 20 with almost 85 bp of hikes discounted for this year. Disappointing labor market data, including the reduction of payrolls for three consecutive months, and a low CPI reading (after last year's administered price increases dropped out of the 12-month comparison) encouraged a re-think by investors. At the end of May, the swaps market was pricing in slightly more than 40 bp of tightening this year. The next step in the British political drama is the June 18 byelection in Makerfield, where the mayor of Great Manchester Andrew Burnham will run for an open seat in parliament, from which is expected to challenge Starmer, the fifth UK prime minister in seven years. When Burnham thought his MP opportunity was in the Gorton and Denton district, he tacked left, but now he is tacking right for the Makerfield constituency. 

Spot: $1.3456 ($1.3532) Median Bloomberg One-month forecast: $1.3400 ($1.3469) One-month forward: $1.3455 ($1.3535) One-month implied vol: 6.1% (6.7%)

Canadian Dollar:  The Canadian dollar trended lower throughout May. It reached a two-and-a-half month high on May 1 and tumbled a little more than 2%. The greenback bottomed at CAD1.3550 and by late May reached the CAD1.3820, its best level since mid-April and stalled near the 200-day moving average and the key retracement objective both round a little above CAD1.38. The Bank of Canada meets on June 10, but there is little chance of a rate move. The swaps market is discounting almost one hike in H2 26.  Canada lost full-time positions for three months through April and five of the past seven months. The economy unexpectedly contracted in Q1 26 for the second consecutive quarter. The Bank of Canada suggests monetary policy might not be able to do much for the structural shift taking place. In early May, the federal government launched a C$1.5 bln initiative to help sectors hit by the US tariffs. Canada risks incurring the wrath of the United States, just as the USMCA review negotiations get underway. Canada hiked to 15% from 5% the amount streaming services (e.g., Netflix and Disney) revenue that must go to local programming. Meanwhile, Alberta will hold a referendum in October to remain in Canada or start a legal process that will lead to a binding referendum on separation, which some in the Trump administration have reportedly encouraged. 

Spot: CAD1.3793 (CAD 1.3668) Median Bloomberg One-month forecast: CAD1.3700 (CAD1.3683) One-month forward: CAD1.3775 (CAD1.3651) One-month implied vol: 4.0% (4.2%)

Australian Dollar: A few days after the Reserve Bank of Australia delivered its third hike of the year on May 5, the Australian dollar recorded its highest level in nearly four years, slightly shy of $0.7280. It subsequently pulled back to around $0.7080 and spent the second half of the month consolidating below $0.7200. Weaker economic data and the softer than expected April CPI underscored that the central bank is moving to the sidelines. The futures market sees little chance of a hike at the June 16 central bank meeting. However, the market is pricing in almost an 85% chance of another hike before year-end. Australia reports Q1 GDP on June 3. Weaker consumption and slower government spending warn that the economy may downshift from 0.8% quarter-over-quarter in Q4 25 to around 0.5% in Q1 26. The central bank expects the economy to slow from 2% in 2025 to 1.9% this year and 1.3% in 2027. Australia's CPI rose 2.8% last year and the central bank has projected 4% this year before easing to 2.4% in 2027. With New Zealand set to tighten more than the Australia during the remainder of the year, one source of Aussie demand is set to weaken. 

Spot: $0.7185 ($0.7152) Median Bloomberg One-month forecast: $0.7150 ($0.7126) One-month forward: $0.7181 ($0.7149) One-month implied vol: 7.6% (9.0%). 

Mexican Peso:  The dollar recorded the low for the year so far against the Mexican peso a couple of weeks before the Middle East War began, near MXN17.0865. It recovered to almost MXN18.1650 in late March and returned toward the lows (~MXN17.1275) around the middle of April. After peaking near MXN17.55 in early May, the dollar spent most of last month consolidating between MXN17.16 and MXN17.43. The corrective/consolidative phase does not appear over. The economic momentum is weak, and the central bank cut this year's growth forecast to 1.1% from 1.6%. Banxico also tweaked its inflation forecast for Q2 (4.1% vs. 3.8%) and Q3 (3.8% vs. 3.5%) but kept the CPI forecast for Q4 26 onwards unchanged with the middle of the 2%-4% inflation target being reached in Q2 27. The central bank has signaled it is done easing and the swaps market appears to be pricing in a hike before the end of the year. The combination of domestic policies, which are not particularly investor friendly and the disruption from the US threats, is spurring a change back to assembling inputs from Asia instead of higher value-added production like autos. The review and renegotiation of the USMCA treaty have begun, and this also poses a risk for the peso (and Mexican economy). Our bullishness toward the peso has been tempered and we suspect there may be scope for the dollar to recover toward MXN17.58-MXN17.65 range. 

Spot: MXN17.3552 (MXN17.3787) Median Bloomberg One-month forecast: MXN17.4000 (MXN17.5322) One-month forward: MXN17.3986 (MXN17.4237) One-month implied vol: 8.4 (8.9%)

Chinese Yuan:  The Chinese yuan trended higher in May, and its roughly 0.80% gain against the dollar outperformed all G10 currencies and most emerging market currencies in the region but the Taiwanese dollar. The yuan reached three-year highs against the dollar, guided by the PBOC, which steadily if slowly, lowered the dollar's reference rate. The dollar's reference rate has fallen in all but three weeks since the end last September. While we continue to closely monitor developments, and it is next to impossible to know the intent of Chinese officials, the campaign accepts the gradual appreciation of the yuan does not appear over. The median forecast in Bloomberg's survey is for the US dollar to finish the year at CNH6.7250, which we think is too conservative, and are more inclined to see something in the CNH6.60-CNH6.65 area. The Chinese economy appears to be struggling, but we do not expect bold new initiatives. China's dominance of high-end manufacturing (dubbed China Shock 2.0 after it dominated labor-intensive manufacturing previously (China Shock 1.0) is continuing apace. High-tech exports have risen by nearly 40% year-over-year in April. China's large current account surplus means that it (the government or the quasi-private sector) will continue to acquire foreign assets. The issue is which foreign assets and at what prices. The significance "constructive strategic stability" that President Xi framed the meeting with President Trump may rest on two things: the potential $14 bln US arms package for Taiwan and the threat of new US tariffs on China. 

Spot: CNY6.7662 (CNY6.8321) Median Bloomberg One-month forecast: CNY6.8000 (CNY6.8407) One-month forward: CNY6.7808 (CNY6.8440.) One-month implied vol: 2.3% (2.8%)

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