Tariff Talk, Rate Walk: Markets Watch Trade Deals and Central Banks.

• Trade Deal in Focus: A potential US-UK trade deal announcement today could shake markets—especially if the US unexpectedly drops the 10% baseline tariff.

• Fed Acknowledges Stagflation Risks: The Fed’s shift in tone on inflation and unemployment has helped push USD rates higher.

• EUR/USD Vulnerable: Long euro positions are looking shaky, with support around 1.1250/1260 critical amid a broader rethink of euro upside potential.

• BoE’s Language Crucial: GBP could rally if the BoE maintains a “gradual and careful” approach to policy easing instead of turning more dovish.

• Nordic Central Banks Eyed: Both Riksbank and Norges Bank may soon cut rates, but NOK still has upside despite a possibly dovish tone today.

USD: Dollar Dances to the Tune of Trade Talks
A tweet from President Trump has set the stage for what many believe to be a US-UK trade deal announcement today at 16CET/10ET. While such bilateral deals rarely shake global markets, today’s agreement could be different—particularly if it includes a rollback of the baseline 10% US tariffs. Market consensus expects tariffs to stay in place, as Washington looks to preserve fiscal room for tax cuts. However, if tariffs are unexpectedly lifted, it could fuel a strong rally in risk assets and push the dollar and equity markets higher.

Adding fuel to the dollar’s rebound was the market’s re-evaluation of last night’s Fed meeting. As ING’s James Knightley observed, the Fed is now acknowledging the stagflation threat—higher inflation alongside rising unemployment—which may shape its June economic forecasts. USD interest rates are ticking upward again, possibly due to both this reassessment and improving market sentiment. Meanwhile, Treasury Secretary Scott Bessent is heading to Geneva for weekend trade talks with China.

US data releases are minimal today, with weekly jobless claims being the key focus. A drop from last week’s surprise jump to 241,000 could support the dollar. Persistent high claims, however, would reinforce concerns that labor market cracks are widening.

All eyes are on the trade deal news. If tariffs are rolled back, the dollar index (DXY) may push toward the 100.35/50 resistance zone. That said, a surge past 101.00 could be in the cards as speculative buy stops build above that level.

EUR: Losing Momentum as Longs Get Nervous
The euro is slipping, now testing the 1.1300 level against the dollar. Despite recent resilience, a deeper drop below 1.1250/1260 could trigger broader position unwinding. The fate of EUR/USD may well depend on today’s trade announcement.

In the background, ING’s new report “Unipolar Disorder” explores the de-dollarisation trend and the role of European fixed income as a potential winner. But for EUR/USD to materially strengthen long-term, either a dramatic improvement in eurozone productivity or a substantial decline in energy costs is needed—neither of which is imminent.

Today’s central bank meetings in Sweden and Norway are expected to hold rates steady, but both could signal future easing. The Riksbank may cut again in June due to growing economic risks, though markets expect August. Any SEK impact should be modest as global themes dominate.

Norges Bank may also lean dovish, given weaker commodity prices and trade friction raising recession risks. While markets see the first cut in August, ING expects it as soon as June, with another in September. Despite this, NOK has outperformed recently and may continue to do so after any temporary setback.

GBP: BoE to Set Sterling’s Tone
The Bank of England meets today, with markets widely expecting a 25bp rate cut to 4.25%. What matters most, however, is the fate of the phrase “gradual and careful” in their forward guidance. A tweak—or removal—could signal a faster pace of rate cuts, aligning with the more dovish market view of four cuts this year.

ING’s UK economist James Smith isn’t convinced the BoE is ready to abandon its cautious tone just yet. If the central bank holds the line on “gradual and careful” easing, GBP could rally, particularly as ING only expects three cuts this year.

Option markets imply an 80-pip break-even range for GBP/USD today and 39 pips for EUR/GBP. Broader risk sentiment may cloud GBP/USD direction, but a less dovish BoE could push EUR/GBP down toward the 0.8435/40 level.