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Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari said during a panel discussion at the Aspen Ideas Festival 2026 in Aspen, Colorado, that he remains concerned about inflation in the service sector, while also noting some signs of improvement in the labor market.

Key takeaways:

I am concerned about inflation, especially in services.

I am seeing some signs of life in the labor market.

Inflation move-up is not just about Oil and the Middle East.

I see rates on hold in 2027.

It was an appropriate time to reset the FOMC statement.

I have one rate hike penciled in for 2026.

We’re going to have to see how no forward guidance works.

The Fed may need to raise rates amid broad inflation.

The goal is to lower inflation without employment damage.

I am not seeing the all-clear sign in the Middle East.”

Kashkari flags risk of broad inflation, keeps rate hike on the table for 2026

Kashkari delivered a distinctly hawkish-leaning message, with the FXS Speechtracker score at 7.3/10 notably above the 6.6/10 historical average. This underscores elevated concern about persistent inflation, especially in services. The emphasis that the latest inflation move-up is “not just about Oil and the Middle East,” combined with guidance for rates to stay on hold into 2027 and a penciled-in hike in 2026, signals a willingness to tighten again if broad price pressure fails to subside. However, signs of life in the labor market support the Fed's goal of cooling inflation without damaging employment. The decision to reset the Federal Open Market Committee (FOMC) statement and experiment with no forward guidance further highlights a cautious stance that keeps upside risks to the US Dollar in focus.

The FXS Fed Sentiment Index rose by 1.37 points to 122.42, reinforcing that the broader policy tone remains firmly in hawkish territory, well above the neutral 100 threshold. In combination with the stronger-than-baseline FXS Speechtracker score, this index move suggests that markets should continue to price a higher-for-longer Fed path, with potential support for the US Dollar against the Euro and Yen if incoming data validate Kashkari’s inflation concerns.

• WTI remains below the $70 mark as expectations of higher Middle East supply weigh on prices.
• Markets expect a gradual recovery in Middle East exports despite ongoing risks around the Strait of Hormuz.
• Commerzbank and Rabobank analysts believe investors may be overly optimistic about the supply outlook.

West Texas Intermediate (WTI) US Oil falls 3.25% on Friday and trades around $69.05 at the time of writing, after hitting its lowest level since late February at $68.48 earlier in the day. The Crude Oil extends its weekly decline as investors increasingly price in a recovery in global supply following the disruptions caused by the conflict with Iran.

Market sentiment has improved as Oil flows through the Strait of Hormuz continue to recover. QatarEnergy has launched its first July-August Crude tender since the conflict began, while Saudi Aramco has resumed loadings at its Ras Tanura terminal after several months of disruption. These additional volumes come on top of new supplies from Iraq, Kuwait and Abu Dhabi, reinforcing expectations of a stronger supply outlook.

US Energy Secretary Chris Wright also said that tanker traffic through the Strait of Hormuz has returned to levels close to those seen before the conflict, with around 20 million barrels transiting the waterway on Wednesday. He also stated that Venezuelan Oil production is increasing rapidly and could continue to grow through the end of US President Donald Trump's term, adding to expectations of a stronger global supply.

Despite the improved sentiment, several banks remain cautious. Commerzbank argues that the market is underestimating supply risks, noting that tanker traffic data still do not point to a full normalization of shipping activity. The bank also highlights that combined US inventories of Crude Oil, gasoline and distillates remain around 7% below their seasonal average, a factor that could support prices if exports recover more slowly than expected.

Rabobank also maintains a cautious stance following the recent attack on a cargo vessel off the coast of Oman. The bank believes the incident highlights the fragile security situation in the Strait of Hormuz, even though the market continues to expect the memorandum of understanding between the United States (US) and Iran to remain in place. According to Rabobank, the agreement continues to support Iranian Oil exports while limiting the immediate risk of further escalation.

US President Donald Trump posted on Truth Social on Friday that Iran violated the ceasefire after launching drones at ships in the Strait of Hormuz, with one of them hitting the upper deck of a large cargo-carrying ship.

Key highlights:

Markets' reaction to Trump’s post

• WTI prices bounced off the daily low of $68.56 and reclaimed $69.00, but they remain trading with losses of 3.54% in the day.
• Gold prices shot up towards a two-day high of $4,096, yet they remain shy of clearing the psychological $4,100 level.

• EUR/USD heads for a second straight weekly loss after slipping to a 13-month low earlier this week.
• Middle East tensions and a hawkish Fed continue to underpin the Greenback.
• Hawkish Fed comments overshadow the US PCE report released on Thursday.

EUR/USD trades on the front foot on Friday but remains on track for a second straight weekly loss as the fragile situation in the Middle East and hawkish Federal Reserve (Fed) outlook keep the US Dollar's (USD) downside limited.

At the time of writing, the pair trades around 1.1400 after climbing to 1.1434 earlier in the American session.

Investors turned cautious after US President Donald Trump said Iran had launched "at least four one-way attack drones" at ships transiting the Strait of Hormuz, calling the incident "a foolish violation of our ceasefire agreement."

Meanwhile, Tehran continues to insist that safe passage through the waterway must be coordinated with Iranian authorities and is pressing ahead with plans to impose transit tolls. Negotiations between the United States and Iran have yet to produce a final agreement after both sides reached a 60-day Memorandum of Understanding (MoU) earlier this month.

The lingering uncertainty is keeping the US Dollar supported after it came under pressure following Thursday's US Personal Consumption Expenditures (PCE) report, which showed underlying inflation remained relatively contained, reducing expectations for a near-term Fed interest rate hike.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.26 after hitting a more than one-year high near 101.80 earlier this week.

However, traders continue to expect the Fed to maintain a restrictive policy stance in the coming months as inflation remains well above the central bank's 2% target.

Minneapolis Fed President Neel Kashkari said on Friday, "I have one rate hike penciled in for 2026," adding, "I see rates on hold in 2027." Kashkari also said, "I am concerned about inflation, especially in services."

On the Eurozone side, traders are reassessing whether the European Central Bank (ECB) will raise interest rates again as easing energy prices reduce inflation concerns.

However, Commerzbank expects the ECB to deliver one more interest rate hike in September, noting, "In any case, our quantitative model forecasts that, despite lower oil and gas prices, the inflation rate is likely to remain around 3% through the end of the year. This is largely because companies will gradually pass on the higher costs they have incurred so far."

• US Dollar slips from YTD highs as Fed repricing cools.
• Burnham fiscal-rule pledge helps calm UK political nerves.
• NFP, UK GDP and Warsh testimony anchor next week.

The Pound Sterling (GBP) gains 0.20% against the Greenback on Friday as the latter recoils after hitting year-to-date (YTD) highs, with money markets pricing in a less hawkish Federal Reserve (Fed), despite policymakers stating they will focus on inflation. The GBP/USD pair trades at 1.3217 after reaching a daily low of 1.3180.

GBP/USD rebounds as Fed bets cool and UK politics stabilize

Cable is set to end the week with modest losses of 0.15%, despite the ongoing political turmoil, which was tempered by UK Prime Minister Keir Starmer's resignation. Signs of an orderly transmission to a new PM, the seventh in 10 years, with the race led by Andy Burnham, who is the only declared candidate to succeed Starmer.

On May 14, Burnham announced his intention to contest a parliamentary seat to challenge Starmer, sparking broad GBP weakness and sending GILTS yields higher. This amid growing speculation that his “business-friendly socialism” will increase spending and borrowing, at a time when the budget is walking a tightrope.

Lately, his team said he would adhere to the current Chancellor Rachel Reeves' fiscal rules, which calmed markets.

Traders eye one rate hike by the BoE

Aside from this, expectations that the Bank of England (BoE) will increase rates in 2026 have trimmed sharply. A week ago, investors expected 33 basis points (bps) of tightening, but as of writing, they had priced in 21 bps, according to Prime Terminal data.

Across the pond, the US economic docket was packed during the week, ending with the release of the US Consumer Sentiment by the University of Michigan, which improved in June. The index rose from 48.9 preliminary reading for June to 49.5, also exceeding May’s print of 44.8.

Further insights on consumers showed that higher costs of living are projected as inflation expectations for one year were unchanged at 4.6% and for five years at 3.3%, down from 3.4% in the previous reading.

In the meantime, the US Dollar Index (DXY), which measures the performance of the American currency against the other six currencies, is down 0.18% to 101.25.

Minneapolis Fed President Neel Kashkari said the Fed may need to raise rates due to broad inflation in a Bloomberg interview.

What’s in the economic calendar for the UK and US, next week?

In the UK, the docket will feature GDP figures and speeches by BoE officials. In the US, Nonfarm Payrolls are eyed, followed by Fed Chair Kevin Warsh's speech at the US Congress and the ISM Manufacturing PMI.

GBP/USD Price Forecast: Technical Outlook

In the daily chart, GBP/USD trades at 1.3218, holding a bearish near-term bias as spot remains below the simple moving average triple cluster (50, 100 and 200) around 1.3431. The pair has slipped away from the former rising support line that began near 1.3159, while the break levels at 1.3454 and 1.3535 on the respective uptrend and downtrend lines sit well overhead, hinting that the recent push lower is still unfolding. The Relative Strength Index (14) at around 38 stays below the midline, suggesting subdued bullish momentum rather than a clear oversold condition.

On the topside, initial resistance emerges at the 1.3431 area defined by the clustered simple moving averages, with further barriers at the former uptrend break near 1.3454 and the downward resistance trend-line break level around 1.3535. On the downside, immediate focus sits on the current trading band near 1.3218, with the prior trend-line origin at 1.3159 offering the next notable support zone should selling pressure extend.

(The technical analysis of this story was written with the help of an AI tool.)

• AUD/USD recovers on weaker US Dollar as the broader outlook for the pair remains negative.
• The US Dollar eased as investors took profits ahead of month-end and quarter-end adjustments following a two-week rally.
• China remains a key driver for the Aussie as stronger Chinese activity or stimulus could support AUD demand.

AUD/USD is recovering near 0.6900 on Friday as the US Dollar (USD) weakens with investors taking profits ahead of the end of the semester after a two-week rally in the Greenback. The move helped the Australian Dollar (AUD) recover some intraday ground, although the full picture remains negative.

The Greenback came under pressure as traders locked in gains following its recent advance, reducing demand for the currency ahead of month-end and quarter-end portfolio adjustments.

China’s economic momentum is closely linked to demand for Australian exports, especially commodities such as iron ore and coal. Any signs of stronger Chinese activity or additional stimulus tend to support the Aussie, while weaker Chinese data can quickly weigh on AUD sentiment.

Lately, Chinese macro figures have painted a mixed picture: tepid consumption, as reflected in a sharp decline in May Retail Sales, a consumption indicator, alongside steady growth in Industrial Production.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6904, holding a capped bias as it oscillates around the 20-period Simple Moving Average (SMA) at 0.6904 while remaining well beneath the 100-period SMA at 0.7016. The cluster of overhead horizontal levels at 0.6906 and 0.6917 reinforces the notion of near-term supply, while the Relative Strength Index (RSI) at 39 stays below the neutral 50 line, hinting that recovery attempts could struggle unless buyers reclaim these nearby resistances.

On the downside, immediate support is seen at 0.6887, followed by a lower horizontal floor at 0.6876, where a deeper pullback could attempt to stabilize. On the topside, initial resistance aligns at 0.6906, ahead of 0.6917, with the 100-period SMA at 0.7016 marking a more significant barrier that would need to be overcome to challenge the prevailing bearish tone.

(The technical analysis of this story was written with the help of an AI tool.)

Standard Chartered economists Hunter Chan and Shuang Ding note that China’s fiscal spending has underperformed so far in 2026, weighing on growth despite stronger-than-expected Q1 data. General public budget spending and government funds spending have both lagged plans, but the approved budget leaves room for a sizeable deficit expansion, which they expect to be used to support domestic demand and GDP growth.

Fiscal deficit room points to support

"Growth momentum weakened in April-May after a stronger-than-expected Q1. The decline in fiscal spending in April-May contributed to the downturn, in our view. The broad deficit, combining the general public budget and government funds budget, was CNY 393bn smaller y/y in these two months, versus CNY 258bn larger in Q1."

"General public budget spending grew only 0.8% y/y in 5M-2026, versus budgeted annual growth of 4.4%. Revenues grew 4% y/y in 5M-2026, faster than the planned annual pace of 2.2%. Government funds spending dropped 4.3% y/y in 5M-2026, weighed down by a nearly 20% y/y decline in revenue as land sales contracted further."

"We expect the government to accelerate budget implementation to boost domestic demand, as Q2 GDP growth will likely fall below 4.5% y/y. The budget approved in March implies a positive fiscal impulse if fully implemented. Assuming YTD revenue trends under the two budgets continue for the rest of the year, we estimate that broad spending growth could rebound if the deficit room is fully utilised."

"The broad deficit in June-December could exceed the comparable 2025 outcome by CNY 1.7tn, on our estimate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

UOB’s Lee Sue Ann highlights that Australia’s unemployment rate dipped to 4.4% in May with a 40.3k employment gain, mainly in part-time jobs, and participation rising to 66.7%. However, she stresses that falling hours worked and higher underemployment signal weakening labour utilisation and a gradual loosening in labour market conditions beneath the resilient headline figures.

Headline resilience versus softer utilisation

"That said, the underlying details were less encouraging. Total hours worked declined by 1.1% over the month, while the underemployment rate ticked higher to 5.9%, indicating a deterioration in labour utilisation despite the rebound in headcount."

"The composition of job gains, skewed toward part-time roles, alongside softer hours worked suggests that firms remain cautious in expanding labour demand. In trend terms, the unemployment rate edged up to 4.4% (from 4.3% previously), reinforcing the view that labour market conditions are gradually loosening beneath the surface."

"Taken together, the latest labour market data reinforces the narrative of a gradual and uneven cooling in the economy. The resilience in headline employment reduces near-term downside risks, but the softer underlying indicators point to continued moderation in labour market momentum."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Societe Generale economists Reo Sakida and Jin Kenzaki analyze June Tokyo Consumer Price Index (CPI), noting that overall inflation dynamics in Japan changed little from May despite a modest upside surprise in headline and core readings. They highlight that non-fresh food is on a disinflationary path but likely near a bottom, while service inflation remains firm and Tankan survey expectations will be crucial into 2H.

Tokyo CPI shows steady inflation signals

"Overall: Inflation dynamics changed little from the previous month. The increase from previous month largely reflects the fading impact of Tokyo’s water fee waiver program and therefore does not signal broader nationwide inflation pressure. Non-fresh food remains on a disinflationary path, although the trough appears close."

"Into 2H, negative base effects begin to fade, adding some upward pressure."

"Food: Food prices continue to decline, but survey data suggest inflationary pressures are building for the late summer months. As negative base effects gradually fade into 2H, food inflation appears close to bottoming."

"In addition, the latest June survey from Teikoku Databank shows an upward shift in planned food price revisions. Higher energy costs have yet to fully feed through to consumer prices, but that is likely to change in late summer as producers begin passing those costs on."

"Nevertheless, service inflation should remain firm, supported by solid fundamentals. Strong wage negotiation results continue to support wage growth, while service consumption has remained resilient."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• GBP/JPY remains range-bound amid UK political developments and Japan intervention risks.
• Tokyo inflation accelerates, supporting expectations of further Bank of Japan rate hikes.
• Attention turns to next week's revised UK GDP and Japan labor market figures.

GBP/JPY trades in a narrow range on Friday as traders weigh the latest UK political developments against lingering intervention risks from Japanese authorities, with USD/JPY holding above the 161.00 level.

At the time of writing, the cross trades around 213.70 after hitting an intraday low of 213.21.

The British Pound (GBP) has remained resilient despite Prime Minister Keir Starmer's resignation, as investors expect a smooth transition to frontrunner Andy Burnham, who has pledged to maintain the UK's fiscal rules.

Earlier on Friday, the Financial Times reported that outgoing PM Starmer is set to increase military spending by at least £1 billion more than previously planned, one of the most significant efforts to strengthen his legacy before leaving office.

Meanwhile, on the Japanese side, the Yen (JPY) remains under pressure despite stronger Tokyo inflation data, which reinforced expectations that the Bank of Japan (BoJ) will continue raising interest rates.

Headline Tokyo Consumer Price Index (CPI) rose to 1.7% YoY from 1.4%, while the CPI excluding fresh food and energy increased to 1.9% from 1.6%.

Attention now turns to next week's economic releases, including the UK's revised first-quarter Gross Domestic Product (GDP) data and Japan's labor market figures.