Fed’s Hawkish Lifts the Dollar, Pressures Gold and Equities

Market Wrap-up: Dollar Surges as Hawkish Fed Erases Rate Cut Expectations

Markets came under significant pressure following the first policy meeting chaired by Kevin Warsh. While the Federal Reserve kept interest rates unchanged at 3.50%-3.75% as widely expected, Warsh's remarks during the press conference effectively erased expectations for rate cuts this year.

Throughout the press conference, Warsh referenced "price stability" approximately 12 times, underscoring the Fed's determination to return inflation to its 2% target. The messaging marked a notable shift, as Warsh had previously been viewed as relatively supportive of a more accommodative policy stance.

The DXY Index traded around 99.60 ahead of the Fed announcement before surging above 100.00 within minutes as the meeting's hawkish details emerged. The index subsequently reached an 11-week high of 100.57. Meanwhile, the US 2 year Treasury yield climbed more than 16 basis points to 4.216%.

The sharp repricing in interest rate expectations weighed heavily on both gold and US equities. Mega cap technology stocks led the decline, with Microsoft, Meta, Alphabet, and Amazon all closing lower. SpaceX also recorded its first daily decline since its listing last Friday.

Warsh additionally stated that the Fed would undergo a broad institutional overhaul spanning communications, balance sheet management, and the integration of AI-related considerations, signaling an operating framework distinct from the Powell era.

Rick Rieder, Chief Investment Officer for Fixed Income at BlackRock, commented: "We believe the Fed has officially entered a new era of monetary policy."

The most important takeaway from the meeting was the updated dot plot. While previous projections continued to leave room for rate cuts this year, the latest forecasts removed that possibility entirely.

Fed officials no longer expect interest rate cuts in 2026 as previously projected. Instead, most easing, if it occurs, has now been pushed back to the 2027-2028 period.

Looking ahead for today, markets will focus on fresh US economic data, including Unemployment Claims and the Philly Fed Manufacturing Index. In addition, both the Swiss National Bank and the Bank of England are scheduled to announce policy decisions, with markets expecting both central banks to leave rates unchanged.

XAU/USD: Gold Slides as Fed Signals Higher Rates for Longer

Key takeaway:

Gold prices fell sharply on June 17 as investors assessed the Federal Reserve's first policy decision under Chair Kevin Warsh.

In its post-meeting statement, the Federal Open Market Committee (FOMC) said the decision to leave rates unchanged was intended to support the Fed's dual mandate of price stability and maximum employment.

The decision weakened expectations for monetary easing. Gold had previously been supported by expectations that interest rates could decline in the future. However, the Fed's more hawkish stance and renewed emphasis on inflation control reduced demand for non-yielding assets, triggering a sharp decline in bullion prices.

Technical Outlook:

Daily Bias: Bearish

Support: 4,170

Resistance: 4,381

WTI: Oil Falls on US-Iran Deal and Growing Global Supply Outlook

Key takeaway:

WTI crude prices declined after the United States and Iran signed a preliminary agreement aimed at ending hostilities, reducing concerns over potential supply disruptions.

The temporary agreement successfully established a permanent ceasefire across all active fronts. More complex diplomatic negotiations regarding nuclear procedures and long-term economic incentives for Iran are expected to continue in the coming months.

In addition, in its first outlook for 2027, the International Energy Agency (IEA) projected that the oil market will enter a period of substantial oversupply, with global production expected to increase by approximately 8 million barrels per day while demand rises by only around 2 million barrels per day.

Technical Outlook:

Daily Bias: Bearish

Support: 71.10

Resistance: 79.19

DXY: US Dollar Hits 11-Week High After Hawkish Fed Shift

Key takeaway:

The US Dollar Index surged as Fed officials under Warsh shifted the policy outlook from future easing toward a higher-for-longer rate trajectory.

The updated dot plot showed that Fed officials no longer expect rate cuts in 2026 as previously projected. Instead, most easing, if it occurs, has been deferred to the 2027-2028 period.

The Fed's median projection indicates the federal funds rate will stand at 3.8% by the end of 2026, approximately 0.16 percentage points above current levels, implying the possibility of one additional rate hike this year.

Technical Outlook:

Daily Bias: Bullish

Support: 100.28

Resistance: 100.70

EUR/USD: Euro Drops as Stronger Dollar Dominates Post Fed Trading

Key takeaway:

EUR/USD fell to its session low following the Federal Reserve's policy decision.

Meanwhile, market participants remained cautious after European Central Bank policymaker Olaf Sleijpen stated that a repeat of the inflation challenges seen in 2022 appears less likely but cannot be ruled out entirely.

He also emphasized that the key issue for Eurozone monetary policy remains the risk of second-round inflation effects, reinforcing a cautious policy outlook.

Technical Outlook:

Daily Bias: Bearish

Support: 1.14800

Resistance: 1.15761

USD/JPY: Japanese Yen Weakens as Fed Reprices Higher Interest Rate Path

Key takeaway:

The Japanese Yen weakened sharply as the Federal Reserve signaled a higher interest-rate path.

At the same time, traders remained highly alert to speculation that Japanese authorities could intervene again to support the domestic currency.

Japanese Chief Cabinet Secretary Minoru Kihara stated during a regular press conference on Thursday that "we stand ready to respond appropriately to currency movements whenever necessary," when asked about the rapid depreciation of the yen.

Technical Outlook:

Daily Bias: Bullish

Support: 160.46

Resistance: 161.00

Overall, markets are reacting primarily to a significant shift in Fed policy expectations rather than growth or geopolitical developments. The Fed's removal of near term rate cut expectations has driven Treasury yields and the US dollar sharply higher, while weighing on gold and US equities.

Meanwhile, oil prices declined as expectations of improved global supply increased following the preliminary US-Iran agreement, further easing energy-driven inflation concerns.

Market attention now turns to upcoming US economic data, particularly Unemployment Claims and the Philly Fed Manufacturing Index, for clues on whether the economy can withstand an increasingly hawkish Federal Reserve.

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