The Federal Reserve executed a hawkish hold yesterday. The increase in US rates has catalysed a notable appreciation of the dollar, which has continued to gain ground slightly today. The new Fed chair garnered predominantly positive evaluations and undermined the narratives that depicted him as subservient to the president’s preferences. He consistently emphasised his and the Fed’s dedication to maintaining price stability. Warsh seems to evoke the period of Greenspan, prior to the shift towards greater transparency that supplanted ambiguity in communication. Less is more. On Tuesday, the Fed funds futures were pricing in 21 basis points of tightening for this year, and it has since increased to nearly 40 basis points. Three additional G10 central banks convened today: Norway’s Norges Bank, the Swiss National Bank, and the Bank of England. All three maintained their policy without alteration. Norway has indicated that an additional increase is probable within the current year. The swaps market has it priced in for September.

The Swiss National Bank maintained 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. In the wake of the Federal Reserve’s hawkish hold, the euro experienced a decline, reaching its lowest point since late March. It has reached a new low near $1.1460 today. The intraday momentum indicators are extended, and the euro appears ready to find stability. Initial resistance may be around 1.15, where options for 9.5 billion euros expire today and another 2.9 billion euros on Friday. That said, the next technical target may be the low from late March around 1.1445, while the mid-March low, which also represents the low for the year, was approximately 1.1410. Increasing US yields have driven the yen to a new low not seen since July 2024.

The dollar reached JPY160.80. It retreated to approximately JPY160.50 but subsequently rebounded to JPY160.90 during the European session. Options for 1.5 billion at JPY161 expire today. The BOJ attempted to exert significant influence over the market in late April and early May after a meeting that was perceived as lacking in hawkishness. With the US on holiday tomorrow, is this an opportunity for Japanese officials to try to overwhelm the market again. Separately, we are likely to learn tomorrow that Japan’s core inflation has remained below its 2% target for the fourth consecutive month in May. Sterling tumbled to $1.3285 yesterday, marking its lowest level in a little more than two months. The firm labour market report was inadequate to halt sterling’s decline, which extended yesterday’s losses to just below $1.3225 today. The early April low was approximately $1.3180, while the late March low, which also marked the year’s lowest point, was nearer to $1.3160. The intraday momentum indicators appear to be overextended. The 1.3265-85 area may present the initial obstacle.

The Canadian dollar experienced a decline, reaching new lows for the year yesterday, driven by the increase in US interest rates and the risk-off sentiment evident in the significant losses in the equity markets. The greenback approached CAD1.4125 yesterday and nearly reached CAD1.4135 today. It found support just below CAD1.41 today. Previously, the year’s US dollar strength, which was recorded last week, was near CAD1.4025. Last November’s high was approximately CAD1.4140.While the Australian dollar was sold yesterday and traded slightly below 0.7000, it maintained a position above last week’s low (approximately 0.6980). It is currently consolidating within a range of approximately 0.7005 to 0.7040. In the broader context, we have been observing a potential head and shoulders top pattern. The neckline is approximately 0.7080-0.7100 and indicates a target of 0.6880.