US FX WRAP: Dollar extends on hawkish FOMC-induced strength

USD strength held and extended on the hawkish FOMC seen on Wednesday, with havens, scandis, and GBP sold the most. The hawkish message via the FOMC statement, dot plot, and absence of easing language in Chair Warsh's press conference continued to add support for USD throughout Thursday despite yields across the curve seeing a modest pullback. Outside of the Fed dynamic, newsflow was light surrounding geopolitics and trade. Oil prices were little changed as we await talks between the US and Iran to get underway at the signing of the MoU on Friday. Energy prices came off lows, perhaps supported by Trump noting that the US would back Israel if it attacks Iran, Channel 14 reported. Regarding US data, muted FX reactions were seen. Initial claims were little changed, continued claims rose above expectations, and the Philly Fed beat. DXY now trades around the May 25 levels of 100.90.

G10 FX traded in the red vs. the dollar, led by the NOK and SEK. Meanwhile, JPY weakness on the widening rate differentials has seen the USD/JPY hit highs of 161.81, nearing the multi-year high of 161.95 seen in 2024. However, as we headed into the equity cash close,  USD/JPY saw a sharp move lower to c. 160.90 from 161.75, before paring to 161.50, despite lack of headline newsflow. 

G10 saw a slate of central banks keep rates unchanged as expected. The SNB kicked things off, keeping rates at 0.00%, noting that policy is appropriate to keep inflation within the range consistent with price stability. The central bank assessed that medium-term inflation pressures are essentially unchanged since March. USD/CHF broke out today above the 0.8043 high in Mar 26 to around 0.8053, a level not seen since Dec 25.

The BoE held rates as expected at 3.75% in a 7-2 vote split, with the two dissenters opting for a 25bps hike. The announcement keeps the on-hold for the foreseeable narrative in play for the BoE, though with risks at this stage still skewed to tightening depending on how the upside risks to energy, and by extension inflation, evolve, and factor in policymakers' thinking against signs of economic weakness. Banks mostly retain calls for BoE to remain on hold; JPM sees tightening in November, Pantheon Macro expects no move until end-2027.

NOK's underperformance was likely influenced by participants unwinding the c. 15% chance of a hike at today's Norges Bank meeting, which saw rates held, and as the 2026 core CPI view was maintained and the 2027 one was trimmed modestly.