Japan and South Korea hit new highs

US stock index futures rallied overnight and into this morning. This helped to make back some of the steep losses which followed last night’s Federal Reserve monetary policy statement, along with the FOMC’s quarterly Summary of Economic Projections. The central bank kept rates on hold as expected. This was the first monetary policy meeting chaired by Kevin Warsh.

It was immediately apparent that things were going to be different from the 8-year period under Jerome Powell. Mr Warsh doesn’t like a constant stream of commentary from his Fed officials. Instead, he wants them to concentrate and react to the data in front of them, and for market participants to do the same.

In this way, he hopes that markets will spend less time waiting for and reacting to Fed commentary. The Fed’s statement was notably shorter than usual and contained no forward guidance. Mr Warsh declined to contribute a Fed Funds forecast to the ‘Dot Plot’.

But of the remaining 18 FOMC members who did contribute, there was a straight split between those who expected no change in rates to a single cut, and those who anticipated at least one rate hike this year. The news saw Treasury yields soar, especially at the short end of the curve.

The dollar rallied, and equities sold off sharply. The CME’s FedWatch Tool showed that the probability of at least one rate hike this year rose to 85% from 60% before the meeting. The likelihood of no change in rates fell to 15% from 40%, with no one now anticipating a rate cut in 2026.

All the US majors had been in positive territory ahead of the statement. But all reversed course to close with losses of 1%-plus. Yet there was a sharp tech-led recovery overnight, which has seen the NASDAQ 100 futures add over 1.5% this morning.

Source: TN Trader

Semiconductor stocks were leading the rebound with gains of over 4% for Marvell and Micron Technology, while Intel was up close to 9%. It’s too early to know if this rally has legs, particularly ahead of tomorrow’s Juneteenth market holiday. Yesterday’s selloff may have damaged confidence to some extent, although not enough to dissuade the dip-buyers from taking advantage of lower prices.

As far as the US/Iran war is concerned, both sides are expected to formally sign the 14-point Memorandum of Understanding in Switzerland tomorrow. But critics have pointed out the vagueness of the document and how issues over enriched uranium and Iran’s export of terrorism around the globe have been kicked into the long grass. Yet the Strait of Hormuz looks like it is reopening, and this would appear to be without the imposition of tariffs or fees. That’s good news, which has contributed to another drop in oil prices.

European stock indices had a mixed start to the session. Investors had to react to evidence of more hawkishness from the US Federal Reserve under Kevin Warsh, along with the positive news about the reopening of the Strait of Hormuz. Last night, the Fed kept rates on hold as expected. But their ‘Dot Plot’ forecast for the Fed Funds rate for the rest of this year was significantly more hawkish than expected.

Source: TN Trader

The CME’s FedWatch Tool is now predicting an 85% probability of at least one 25 basis point rate hike before year-end. This is up from 60% ahead of the Fed statement. Mr Wash has also signalled that the FOMC will be holding its cards close to its chest from now on.

He is not in favour of providing a running commentary on events, which suggests less transparency from the Fed in future. The fact that the Fed’s latest statement was less than half the length of previous ones could be viewed as a statement of intent (boom boom) from Chair Warsh. Mr Warsh also declined to join his FOMC colleagues in contributing to the infamous ‘Dot Plot’.

The Swiss National Bank kept rates unchanged as expected, and the Bank of England is also likely to leave its key interest rates on hold later this morning. Earlier on, the UK’s unemployment rate eased to 4.9% in the three months to April, slightly below expectations and improving from the previous reading of 5.0%.

But the Claimant Court came in above expectations, while Average Earnings were well above the consensus forecast. Yesterday’s inflation data was a tad softer than expected, which all contributed to the view that the Bank will keep rates steady after today’s meeting.

The US dollar flew higher yesterday evening following the release of the Federal Reserve’s latest monetary policy statement and quarterly Summary of Economic Projections. These were more hawkish than expected, and the probability of at least one 25 basis point rate hike this year rose from 85% from 60% before the announcement.

While there’s a 15% likelihood of ‘no change’ to rates this year, the CME’s FedWatch Tool assigns no probability to any cut in rates. Bear in mind that the market began 2026 expecting at least 50 basis-points-worth of cuts. But the US/Israeli attack on Iran and the subsequent jump in the oil price have put an end to that.

Last night, the cash Dollar Index broke above resistance at 100.00 but then pulled back. But it saw more buying this morning, and, at the time of writing, had taken out its high from the end of March to hit a thirteen-month high around 100.50.

This renewed strength follows a recent selloff, as optimism over the increased likelihood of the US-Iran peace agreement encouraged some profit-taking in the dollar. But the greenback found significant support as US Treasury yields soared following last night’s hawkish Federal Reserve monetary policy statement and quarterly Summary of Economic Projections.

This renewed dollar strength will be a massive headache for the Japanese government and its central bank. Earlier this morning, the USD/JPY rose above 160.73, which was where Japan intervened to support the yen back in April. While they were able to take the USD/JPY back down towards 155.00 in the week following the initial intervention, the yen soon started to sell off again.

The USD/JPY has risen steadily ever since, and now Japanese authorities are warning that they are prepared to intervene again, even though the previous attempt was an expensive failure.

Source: TN Trader

Yesterday evening, gold hit a twelve-day high above $4,380 and looked to be on its way to retesting resistance at $4,400 per ounce. Then came the Federal Reserve’s monetary policy statement and quarterly Summary of Economic Projections (SEP). These were all much more hawkish than expected, and it was apparent that the new Chair, Kevin Warsh, would not be taking orders from President Trump.

Source: TN Trader

The SEP also showed the divide between FOMC members, who were evenly split between those anticipating at least one rate hike before the year-end, and those looking to keep rates steady, with some favouring a small cut. The news triggered a sharp rally in the US dollar as Treasury yields soared, which pulled the rug from under gold and silver prices.

Over the next hour or so, gold dropped below $4,220, a fall of 3.6%, before it found some support. Silver lost close to 6% over the same period. Both managed a decent recovery overnight, but as midday approached London time, it was apparent that upside momentum was starting to ebb away.

Source: TN Trader

It’s difficult to know where they go next, particularly with the US dollar on such a tear. But, as things stand, it looks as if a hawkish Fed may weigh on prices more than a US/Iran peace deal may offer support.

Oil prices fell further overnight and into this morning. Front-month (July) WTI came within a few cents of $74 per barrel, trading at its lowest level since the 4th of March, just five days after the US and Israel launched their attack on Iran.

Front-month (August) Brent dropped towards $77 per barrel, its lowest level since the 10th of March, so both contracts have given back a significant proportion of their gains since the outbreak of the war.

Source: TN Trader

The US and Iran are expected to formally sign a fourteen-point Memorandum of Understanding (MOU) in Switzerland tomorrow. This should lead to the full reopening of the Strait of Hormuz within 30 days. Although there are reports that tankers are already sailing through.

It appears that Iran has backed down from its demand that it be allowed to charge all shipping a ‘fee’ to escort them safely through the Strait. Although there is a leaked version of the MOU doing the rounds that makes no mention of this, suggesting that it may still be an issue to be agreed upon. But that aside, oil prices have fallen steadily as the situation normalises.

Meanwhile, the International Energy Agency (IEA) has warned of a potential supply glut next year. Not only has OPEC+ agreed to increase output, but with the US agreeing to remove sanctions on Iranian crude, there is additional supply coming to the market, even as global demand growth looks likely to slow.

Bitcoin dropped below $64,000 earlier this morning before staging a modest rebound. But that appeared to run out of steam as today’s session progressed. Bitcoin could simply be ‘backing up and filling in’ after a rally which took it from below $60,000 at the beginning of this month to over $67,200 on Monday. But the bears are out again, convinced that there’s further downside to come.

The US-Iran peace agreement initially supported risk assets. But cryptos reacted negatively to a sharp rise in Treasury yields, particularly at the short end of the curve, following last night’s hawkish statement from the Federal Reserve. The Fed's updated projections triggered concerns that it could raise rates by at least 25 basis points before the end of this year.

This prompted investors to reduce their exposure to risk-sensitive assets. But what if the pullback in oil prices ahead of the reopening of the Strait of Hormuz suggests that inflation has already peaked? That would trigger yet another ‘about-turn’ in rate hike expectations.

The Federal Reserve's hawkish tone has shifted market expectations significantly, with traders now increasingly pricing in the possibility of at least one rate hike before the year-end. Kevin Warsh's first meeting as Fed Chair delivered a tougher message than many investors expected, challenging assumptions that the central bank would soon move toward easier policy.

Meanwhile, developments surrounding the US-Iran peace agreement remain critical. Although the memorandum has been signed and confidence has improved, investors will continue watching for signs that both sides remain committed to the framework.

With a US holiday approaching and quarterly futures expiry around the corner, trading conditions could remain volatile.

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