The Federal Reserve delivered a hawkish hold yesterday. The jump in US rates spurred a strong dollar advance that has been extended a little today. The new Fed chair received mostly high marks and dealt a blow to those narratives that saw him as beholden to the president’s wishes. He repeatedly underscored his and the Fed’s commitment to price stability. Warsh appears to harken back to Greenspan’s era before greater transparency replaced ambiguity in the communication. Less is more. On Tuesday, the Fed funds futures were discounting 21 bp of tightening this year, and now it is near 40 bp.
Three other G10 central banks met today, Norway’s Norges Bank, the Swiss National Bank, and the Bank of England. All three kept policy unchanged. Norway signaled another hike is likely this year. The swaps market has it discounted for September. The Swiss National Bank kept its deposit rate at zero. The BOE’s target rate remained at 3.75% and the swaps market anticipates at least one hike by year end. Today’s byelection in Makerfield will shape the near-term course of national politics and set the stage for a formal challenge to Prime Minister Starmer. Lastly, reports indicate ships are beginning to transit the Strait of Hormuz and oil prices are extended their slide.
Prices
G10
• Following the hawkish hold by the Federal Reserve, the euro tumbled to its lowest level since the end of March. It has made a new low near $1.1460 today. The intraday momentum indicators are stretched, and the euro looks poised to stabilize. Initial resistance may be around $1.15, where options for 9.5 bln euros expire today and another 2.9 bln euros on Friday. That said, the next technical target may be the low from late March around $1.1445 and the mid-March low, which is also the low for the year, was about $1.1410.
• Rising US yields pushed the yen to a new low since July 2024. The dollar reached JPY160.80. It backed off to about JPY160.50 but returned to JPY160.90 in Europe. Options for $1.5 bln at JPY161 expire today. The BOJ tried to overwhelm the market in late April/early May following the BOJ meeting that was judged as not sufficiently hawkish. With the US on holiday tomorrow, is this an opportunity for Japanese officials to try to overwhelm the market again. Separately, we will likely learn tomorrow that Japan’s core inflation was below its 2% target for the fourth consecutive month in May.
• Sterling tumbled to $1.3285 yesterday, its lowest level in a little more than two months. The firm labor market report was insufficient to prevent sterling from extending yesterday’s losses to slightly below $1.3225 today. The early April low was around $1.3180 and the late March low, and low for the year, was closer to $1.3160. The intraday momentum indicators are overextended. The $1.3265-85 area may offer the first hurdle.
• The Canadian dollar was sold to new lows for the year yesterday amid the jump in US rates and the risk-off reflected in the sharp equity market losses. The greenback reached almost CAD1.4125 yesterday and nearly CAD1.4135 today. It found support a little below CAD1.41 today. Previously, the year’s US dollar higher, which was recorded last week, was near CAD1.4025. Last November’s high was around CAD1.4140.
• While the Australian dollar was sold yesterday and traded slightly below $0.7000, it held above last week’s low (~$0.6980). It is consolidating so far today between about $0.7005 and $0.7040. In the bigger picture, we have been monitoring a possible head and shoulders top pattern. The neckline is around $0.7080-$0.7100 and projects toward $0.6880.
EM
• The dollar made a one-month low against the Mexican peso on Monday near MXN17.1575. It reached almost MXN17.4370 on the back of the jump in rates and the equity drop. The greenback’s gains were halved in late dealings, and it settled near MXN17.3055. It is trading in about a MXN17.24-MXN17.3550 range today. The intraday momentum indicators are overextended and a pullback in North America toward the session low seems reasonable. Separately, Brazil’s central bank delivered its third consecutive quarter-point rate cut and brought the Selic to 14.25%. It was largely anticipated though inflation at 4.72% in May is above target and unemployment is near a record low. The dollar settled at BRL5.1115 yesterday, a six-day high close. Near-term risk extends back to last week’s high around BRL5.20.
• The dollar reached a five-day high against the offshore yuan yesterday, near CNH6.7815. Initial resistance may be around last week’s high (~CNH6.7925). It is consolidating inside yesterday’s range today. The dollar’s jump gave the PBOC little choice, it would seem, but to fix the dollar higher today and it did (CNY6.8130 vs. CNY6.8096 yesterday).
• The prospect of a trade deal with the US and the further drop in oil prices helped the Indian rupee extend its recovery into the fifth session today. In fact, initially the dollar gapped higher today and reached INMR94.7225 before reversing lower and fell to INR94.17, its lowest level since early May. It settled at INR94.33 for a nearly 0.85% loss this week, the largest in a little more than two months.
Other Markets
• The sharp decline in US equities did not carry over much to the Asia Pacific session today. Most large bourses advance but Hong Kong and mainland companies that trade there. Australia and New Zealand indices also retreated. Europe’s Stoxx 600 is threatening to end a five-day advance. US index futures are bouncing back, with the Nasdaq futures up about 1.6% and the S&P 500 up around 0.9%.
• The jump in US rates yesterday (13 bp in the two-year note and nearly five bp in the 10-year note) appeared to drag global rates higher today. European 10-year benchmark yields are mostly 1-2 bp higher. The 10-year US Treasury yield is about three basis points softer, near 4.45%, while the two-year yield is firm near 4.19%. European two-year rates are mostly 4-6 bp higher.
• Gold was not a match for the jump in US rates and dollar. It posted an ostensibly bearish outside down day. It closed the gap created by Monday’s higher opening and settled inside it. The yellow metal is firmer today but within yesterday’s range. It has traded between about $4254 and $4330 today. Silver’s price action was similar—an outside down day and filled the gap from Monday. However, unlike gold, silver settled below now filled gap, adding to the bearish action. Yet, it too has not seen follow-through selling today and is slightly firmer, above $68.
• July WTI fell to $74.60 yesterday before stabilizing. Losses were extended about $74.15 today. Reports indicate that the first ships, including a Saudi supertanker has made its way through the Strait of Hormuz today. July WTI is off a little more than $20 since the start of last week. The momentum indicators are stretched, and much good news seemingly has been discounted. The memorandum of understanding, or as one US Senator called it “a framework on how to get a deal”, has been signed and apparently is being implemented, and therein lies the immediate risk.
Data
• Following yesterday’s FOMC’s hawkish hold, today’s US data seems like small beer. The June Philadelphia Fed business outlook is one of the first June surveys that are reported. The Empire manufacturing and services were weaker than expected. Weekly initial jobs claims draw some attention after last week’s report saw a third consecutive weekly increase to 229k, the most since January. Continuing claims rose to a two-month high. Late today, the Treasury’s April international capital report (TIC) will be released. In Q1 26, there was a monthly average net foreign purchase of US stocks and bonds of about $101.55 bln, which is down from an average of about $128.55 in Q1 25. Chair Warsh may eschew forward guidance, yet for the time being at least, the market uses the Summary of Economic Projections as its forward guidance.
• Canada reports May industrial product and raw material prices. These are not the stuff that moves markets. Tomorrow, Canada is expected to report a 0.6% rise in April retail sales (0.9% in March). Next week’s highlight is the May CPI. The swaps market expects the Bank of Canada to remain sidelined until at least the fourth quarter.
• The eurozone reported a 15.7 bln euro current account surplus in April. In April 2025, it stood at 22.1 bln euros. In the first four months of the year, it averaged 24.09 bln euros compared with an average of 24.25 bln euros in January-April 2025 and 38.83 bln euros in the same period in 2024. Separately, construction spending rose by 0.6% after rising by a revised 1.7% (0.8% initially) in March.
• Ahead of the expected standpat decision by the Bank of England (7-2 vote), the UK released labor market report. Average weekly earnings growth with and without bonuses was steady at 4.4% and 3.4%, respectively. The number of payrolled employees rose by 2k in May. It was the first increase in four months. Through May, the UK payrolls fell by about 85k compared a loss of 43.2k in the first five months of 2025. The claimant count rose by 31.2k for an average monthly increase of about 12k this year compared with an average decline of almost 5k a month in the year ago period. The ILO measure of unemployment slipped to 4.9% from 5.0%. The swaps market has the BOE on the sideline until late this year when a 25 bp hike is discounted in Q4. Makerfield holds its much anticipated byelection today, and a victory by Andrew Burnham sets the stage for a formal challenge of Prime Minister Starmer, who the Labour Mayor of London declined back earlier this week. Still, there are hopes that there can be an orderly transition.
Reviewed by Marc Chandler
on
June 18, 2026
Rating:
