The DXY Index rebounded to its 100.60, the war-related highs seen in March, before ending overnight at 100.10. Fed Chair Kevin Warsh’s push to drop forward guidance could not stop 9 of the 18 FOMC participants from pencilling in an interest rate hike in 2026 in the dot plot. The US Treasury 2Y yield rebounded by 13.3 bps to 4.18%. With the futures market bringing forward its Fed hike to September, sending all three US equity indices lower. Investors must now balance between the Fed’s hawkish shift and tomorrow’s US-Iran peace treaty signing in Geneva, which will reopen the Strait of Hormuz and ease energy supply lines.
Overall, the Fed did not out-hawk the other central banks. Yesterday felt like a hawkish shock because the March dots still projected a rate cut this year. Rather, the Fed is now aligned with the stagflationary currents that global peers are addressing with a “higher for longer” rates stance, forcing the market to price out the Fed put all at once. With monetary policies more synchronized, the DXY and its components may remain within the ranges established since mid-2025. The OIS market expects today’s Bank of England meeting to signal a hike with the Fed in September to keep both policy rates at the same level. However, GBP/USD is staying supported at 1.33, with uncertainty over whether Andy Burnham can win the closely contested Makerfield by-election today to mount a leadership challenge against Prime Minister Keir Starmer. Elsewhere, USD/CAD is above 1.40 but remains below the 1.4140 high seen last November. USD/JPY remains below its July 2024 high of 162, despite a new post-intervention high above 160.
Quote of the Day
“”Life is like riding a bicycle. To keep your balance, you must keep moving.
Albert Einstein
June 18 in history
Napoleon Bonaparte was defeated in the Battle of Waterloo in 1815.
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