The US Federal Reserve's Federal Open Market Committee (FOMC) announced its fourth interest rate decision of the year on June 18, holding the benchmark rate steady at 3.50%-3.75%, in line with market expectations. Analysis suggests that nearly half of Fed policymakers no longer believe that merely keeping borrowing costs stable is sufficient to bring inflation back down to the 2% target, particularly in the context of surging oil prices following the Iran conflict. The Fed's dot plot, submitted by 18 of the 19 officials, revealed a range of views: one official projected cumulative hikes of 75 basis points through the remainder of 2026, five officials projected 50 basis points, three projected 25 basis points, eight favored holding rates steady, and one projected a cumulative cut of 25 basis points.
In other news, UK inflation unexpectedly held steady in May, suggesting price pressures were lower than previously feared before the US-Iran ceasefire agreement triggered a sharp drop in oil prices. Data released Wednesday by the UK's Office for National Statistics showed the Consumer Price Index (CPI) rose 2.8% year-on-year, unchanged from April and below economists' forecast of 3%. The ONS noted that weaker food and non-alcoholic beverage prices helped contain overall inflation. However, services CPI, a key gauge of domestic inflation pressure, rose 3.7%, exceeding expectations. This data appears to support the cautious, wait-and-see stance of some Bank of England officials. The BoE is set to announce its own rate decision on Thursday. While markets had initially expected the BoE to hold rates at 3.75%, the ceasefire agreement and potential reopening of the Strait of Hormuz have led to doubts about the necessity for further hikes. Market pricing now implies only one more rate increase from the BoE this year.
Key data to watch today includes the UK April unemployment rate, UK April three-month average earnings including bonuses, US initial jobless claims for the week ending June 13, and the US June Philadelphia Fed Manufacturing Index. Additionally, the Bank of England's interest rate decision and meeting minutes, due later in the day, warrant close attention.
US Dollar Index
The US Dollar Index surged yesterday, breaking above the 100.00 mark to hit a fresh 11-week high. It is currently trading around 100.30. The rally was driven primarily by short-covering and, more significantly, by a hawkish signal from the much-anticipated Fed policy decision, which boosted expectations for future US rate hikes. Supportive US economic data released during the session also contributed to the dollar's strength. Near-term resistance is seen around 100.80, with support around 99.80.
EUR/USD
The euro fell sharply yesterday, briefly breaking below the 1.1500 level to touch an 11-week low. It is currently trading near 1.1520. The decline was attributed partly to profit-taking and, more crucially, to a stronger US dollar, which gained on the Fed's hawkish tilt. Resistance is anticipated around 1.1600, with support near 1.1400.
GBP/USD
The British pound also experienced a significant drop, losing the 1.3300 handle to reach a 10-week low. It is currently trading around 1.3310. Factors behind the move included profit-taking and the broad-based US dollar strength, fueled by solid US data and heightened Fed hike expectations, which pushed the Dollar Index above 100.00. Additionally, diminished expectations for aggressive Bank of England rate hikes weighed on sterling. Resistance is eyed near 1.3400, while support lies around 1.3200.
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