Global Markets Overview: July 2026

Over the first half of 2026, global interest rate expectations have undergone a meaningful shift. In the wake of the U.S.-Iran conflict and the associated volatility in energy and commodity markets, investors have moved from expecting a policy interest rate cutting cycle from central banks towards pricing-in a greater risk that policy rates remain higher for longer. This transition reflects a renewed concern among central banks about inflation persistence, even as growth dynamics remain uneven across regions.

United States

In the United States, the June FOMC meeting, the first chaired by Kevin Warsh, marked an important turning point in market perception. While the Federal Reserve left its policy rate unchanged, the tone of communication was interpreted as more in-line with the potential for rate hikes than cuts. Policymakers highlighted ongoing inflation risks and updated projections revealed a broader dispersion of views, with several officials indicating the potential for rate increases before year-end. This shift has contributed to the market repricing the expected path of U.S. policy rates higher, even as oil prices retraced following the interim U.S.-Iran agreement.

What Federal Reserve policy rate is the interest rate market pricing in?

We compare market expectations for the path for U.S. interest rates at the start of the year with the expected path now.

United Kingdom

Elsewhere, central banks are navigating similarly complex trade-offs. The Bank of England held the bank rate at 3.75% in a 7-2 split decision, with two members voting for a hike, underscoring concerns that elevated energy costs could feed into broader inflation expectations despite weak underlying growth. Political developments in the U.K. have so far had a limited market impact, although fiscal credibility remains a key sensitivity for gilt and sterling markets.

Europe

In the Eurozone, the European Central Bank raised rates by 25 basis points in June, citing persistent inflation pressures while acknowledging a relatively subdued growth outlook.

Japan

Meanwhile, the Bank of Japan continued its gradual normalization, lifting its policy rate to 1%, the highest level since the mid-1990s, as it steadily exits decades of ultra-accommodative policy.