Forex Today: US Dollar rallies on hawkish Fed, focus shifts to BoE
Here is what you need to know on Thursday, June 18:
The US Dollar (USD) gathered strength against its rivals in the American session on Wednesday as investors reacted to the Federal Reserve's policy statement and to changes in the Summary of Economic Projections. Comments from Chairman Kevin Warsh in his first post-meeting press conference also were supportive for the currency. Later in the day, the Swiss National Bank (SNB) and the Bank of England (BoE) will announce interest rate decisions. The US economic calendar will feature weekly Initial Jobless Claims data and Philadelphia Fed's Manufacturing Survey for June.
The USD Index gained nearly 1% on Wednesday and reached its highest level since late March above 100.50. The index corrects lower in the European session but manages to hold above 100.00. Wall Street's main indexes suffered heavy losses midweek, while the benchmark 10-year US Treasury bond yield rose by 1% to 4.5%. US stock index futures gain traction early Thursday and rise betwee 0.5% and 1.2% on the day.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | 0.68% | 0.31% | 0.81% | 0.11% | 0.56% | 0.28% | |
| EUR | -0.44% | 0.21% | -0.11% | 0.35% | -0.36% | 0.11% | -0.17% | |
| GBP | -0.68% | -0.21% | -0.51% | 0.15% | -0.57% | -0.10% | -0.38% | |
| JPY | -0.31% | 0.11% | 0.51% | 0.49% | -0.21% | 0.29% | -0.03% | |
| CAD | -0.81% | -0.35% | -0.15% | -0.49% | -0.73% | -0.20% | -0.52% | |
| AUD | -0.11% | 0.36% | 0.57% | 0.21% | 0.73% | 0.48% | 0.19% | |
| NZD | -0.56% | -0.11% | 0.10% | -0.29% | 0.20% | -0.48% | -0.28% | |
| CHF | -0.28% | 0.17% | 0.38% | 0.03% | 0.52% | -0.19% | 0.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
In the meantime, the White House stated late Wednesday that US President Donald Trump and Iran’s Masoud Pezeshkian signed the Memorandum of Understanding (MoU) to end the US-Israel war on Iran, BBC reported. Iranian officials said that the country will “not return to prewar conditions” and that Tehran will charge ships to transit the waterway after a 60-day toll-free period stipulated in the memorandum of understanding.
Gold fell more than 1.5% following the Fed event but managed so stabilize at around $4,300 in the European morning on Thursday.
GBP/USD came under heavy bearish pressure in the late American session and ended the day with a 1% loss. The pair stages a modest rebound and holds above 1.3300 early Thursday. The BoE is widely expected to maintain the bank rate at 3.75%. Since there will not be a press conference, investors will pay close attention to the vote split and the policy statement language.
EUR/USD fell about 0.9% on Wednesday and erased the previous week's gains. The pair trades in positive territory at around 1.1530 in the European morning on Thursday.
USD/CHF trades slightly below 0.8000 to start the European session following Wednesday's rally. The SNB is seen keeping the policy rate unchanged at 0%.
USD/JPY registered small gains on Wednesday before stabilizing above 160.50. Japanese Chief Cabinet Secretary Minoru Kihara told a regular press conference on Thursday, that they are ready to respond appropriately to currency moves as needed at any time, when asked about the rapid recent in the Japanese Yen (JPY).
Fed holds rates steady as elevated inflation and solid growth keep policy stance hawkish
The latest Fed Monetary Policy Statement striked a more hawkish tone relative to the historical average, with the FXS Speechtracker score rising to 6.0 from a baseline of 4.9 despite an unchanged 3.50-3.75% policy range. Emphasis on inflation remaining elevated versus the 2% goal, strong productivity and capital investment, and solid economic activity despite Middle East-related uncertainty, combined with a unanimous vote and a reaffirmed ample-reserves stance with scope to increase securities holdings “when appropriate,” underscored a Fed still prioritizing price stability over early easing. Overall, the communication signals a central bank comfortable with current settings but not yet ready to signal a pivot toward lower rates.
The FXS Fed Sentiment Index dropped to 120 from around 150, suggesting that the hawkish stance was unchanged despite the index retreating from recent highs. With the index far above the neutral 100 mark, the Fed’s message continues to anchor expectations for restrictive policy, limiting immediate downside for the US Dollar even without an outright rate hike signal.
Fed doubles down on 2% goal as guidance dropped, keeping Dollar bid
Comments from Fed Chairman Warsh at the post-meeting press conference sat exactly in line with the established baseline, with the FXS Speechtracker score arriving at 6/10 versus the historical average of 6/10, but the messaging was more structurally hawkish than the headline score implied. The repeated insistence that 2% inflation is the “longheld objective,” that there is “no reason” to revisit the target until it is delivered, and that inflation is “primarily determined by monetary policy” underscores a strong, unanimous commitment to keep policy tight enough to hit the goal, even as policymakers downplay the binding nature of the dots and explicitly drop forward guidance. The combination of a restrictive stance for the housing market, an acknowledgment that financial conditions remain relatively loose, and a shift toward data- and market-driven decision-making is likely to support the Dollar on dips, while increasing day-to-day sensitivity to incoming data and market pricing.
The FXS Fed Sentiment Index held at 120.00 after the press conference. For FX traders, this configuration—an index still well above neutral alongside a mid-range FXS Speechtracker score—suggests that the Fed’s reaction function remains skewed toward restraining inflation, even as the explicit forward guidance framework is dismantled and markets are encouraged to let data and pricing lead the narrative.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
