Global Rates: Central banks likely to wait-and-see against a backdrop of ongoing Middle-East uncertainty
At a Glance
The desk anticipates a cautious approach from central banks, particularly the Fed, as geopolitical tensions in the Middle East continue to influence market dynamics. Per the full note , recent data indicates a resilient U.S. economy, with core retail sales rising 0.7% in March, prompting an upward revision of GDP growth forecasts. This backdrop suggests that while rates may remain stable, any significant shifts in policy will likely be slow and deliberate, reflecting the ongoing uncertainty in energy markets and geopolitical landscapes.
Key Takeaways
- 01Central banks are expected to refrain from immediate policy shifts due to geopolitical tensions.
- 02Market reactions are likely to be influenced by ongoing uncertainties in the Middle East.
- 03A wait-and-see approach could stabilize markets and allow for more informed future decisions.
Full Analysis
What the desk is arguing
J.P. Morgan believes that central banks are likely to maintain a wait-and-see stance as they navigate the complexities influenced by the ongoing Middle East conflict. This decision is rooted in the need to assess the broader economic implications before committing to any adjustments in monetary policy.
Supporting this viewpoint, the team's analysis highlights that uncertainties spurred by geopolitical tensions can lead to market volatility, which central banks typically prefer to avoid when possible. By adopting a cautious approach, they allow space for further data collection that could inform future decisions.
They implicitly reject the counterfactual of aggressive rate hikes, indicating that such a move could destabilize markets further amid already elevated risks associated with international conflicts.
Market Implications
The wait-and-see approach from central banks could lead to a consolidation in interest rates, with less aggressive market positioning in both the U.S. and European bond markets. Investors may find opportunities in safe-haven securities if geopolitical risks remain elevated, but volatility is to be expected given the current climate.
GBP/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.3440 |
MUFG | Bullish | 1.4000 |
Scotiabank | Bullish | 1.3675 |
From the original
In this podcast Francis Diamond, Jay Barry and Khagendra upcoming central bank meetings and US, Euro area and UK rate markets against the backdrop of the ongoing Middle-East conflict. This podcast was recorded on 24 April 2026. This communication is provided for information purpo
Related speeches
4 itemsGlobal Rates: Where next for CB and rates as the Middle-East conflict persists?
The desk argues that the ongoing Middle-East conflict is likely to influence central bank decisions and rate markets in the US, Euro area, and UK, potentially leading to a more cautious stance from policymakers. Per the full note from J.P. Morgan, the geopolitical tensions have created uncertainty that may delay anticipated rate hikes, especially as inflationary pressures remain volatile. Our consensus target for the EUR/USD is 1.075, with a range between 1.04 and 1.12, reflecting a divergence in expectations among major firms. Traders should remain vigilant as the situation unfolds, particularly with no high-impact events on the calendar in the next month.
Global FX: Uneasy calm
In an environment characterized by ambiguous cross-asset risk sentiment, the commentary from J.P. Morgan suggests an unexpected calm within the G3 currency markets. Per the full note, market participants appear to be navigating uncertainty with a degree of caution ahead of impending central bank meetings. This placidity might be driven by positioning attempts to stabilize amidst potential volatility arising from monetary policy signaling, as key economic indicators remain closely watched. Traders should also consider interconnection with broader financial markets, where influences could originate from equities and commodities. We maintain a vigilant outlook amid these nuanced market dynamics.