Central Banks Face Inflation Test Amid Escalating Tensions

The global economy is bracing for a week of key interest rate decisions from major central banks, including the US Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ).

Middle East tensions and President Trump's fresh tariffs have revived inflation fears, sending oil prices soaring. This has led investors to price in more US rate hikes, with 35% chance of a quarter-point hike by the Fed as soon as this week.

The Fed decision on Wednesday will be closely watched, with any hints that they could raise rates in September likely to boost the dollar and Treasury yields. However, with no clear signals from Kevin Warsh, investors may struggle to arrive at safe conclusions.

In the UK, the BoE meeting on Thursday is expected to keep interest rates unchanged, but a hawkish message could drive sterling volatility. Meanwhile, the BoJ's announcement on Friday will be closely watched for any signs of a more aggressive policy shift.