Central bank announcements were on the docket this week as markets also followed developments in the Middle East closely. The US Federal Reserve Board (“Fed”), Bank of Japan (“BoJ”) and Bank of England (“BoE”) all held rates steady. The central banks of Sweden, Norway and Switzerland all decided to cut borrowing costs. The conflict between Israel and Iran entered its seventh day as the US considered its position.

• The BoE held its policy rate steady at 4.25%, although three of the nine policymakers voted to cut rates. The meeting minutes referred to concerns about the Middle East conflict’s impact on oil prices. The BoE has lowered rates every three months since its first cut in August 2024.
• The Fed and BoJ each opted to take a cautious stance, also holding interest rates steady. Fed Chair Jerome Powell pointed to three months of favourable inflation readings. He also noted expectations for inflationary pressure as US tariffs work through to consumers over the summer. The BoJ held its rate at 0.5% as inflation hit 3.6% in April.
• Central banks in Sweden, Norway and Switzerland lowered interest rates, partially in response to the new tariff environment. The cut from Norway was unexpected. The Swiss central bank lowered borrowing costs to zero and was focused on managing the strength of the Swiss franc. Sweden’s central bank, the Riksbank, made its seventh rate cut since May 2024.
• Oil markets reassessed risk based on the Middle East conflict. With the BoE and other central banks monitoring “deeply disturbing” events in the Middle East, the risk to oil markets is a key concern. Oil prices have risen sharply since the conflict began seven days ago.

The diverging moves from central banks reflect differing domestic priorities and a shared concern over the declining geopolitical environment. The risk to oil markets appears to be growing in the short term. A report from Bloomberg suggested that senior US officials were preparing for a higher level of involvement.

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