The Fed and ECB Are Set to Wait and See

Markets are in consolidation ahead of Fed and ECB meetings as both central banks signal a wait-and-see approach amid Middle East tensions. The ECB is keeping hawkish rhetoric to avoid past policy mistakes but is reluctant to rush into actual tightening; Bloomberg expects Lagarde to hint at a June rate hike. The Fed is likewise cautious, monitoring geopolitical fallout and persistently-elevated PCE inflation (above 2%), which keeps some Fed officials sounding hawkish. The combination of ‘hawkish’ talk and market caution has strengthened the dollar and pressured gold (gold hit a four-week low); EURUSD is vulnerable to declines if ECB hints fail to convince investors. Broader market moves will depend on central-bank messaging and developments in the Middle East, plus any signals on Powell’s Fed tenure that could alter the policy outlook.