US FX WRAP: Dollar gains on hawkish FOMC rate decision, statement, SEPs, and new Chair Warsh

USD saw strength in response to the FOMC statement and dot plots, which saw 9 members see at least one hike by year's end. The Fed held rates, as expected, and delivered a completely new statement in Warsh's inaugural meeting as the Chair. Whilst the statement omitted forward guidance, markets felt the outlook was provided through the dot plots, namely, many members seeing hikes this year and rates remaining higher from current levels through 2027. A prompt hawkish reaction was seen across markets, furthered by the language addition within the statement that "The Committee will deliver price stability", whilst mentions on the labour part of the mandate were limited, showing a heavy inflation tone skew. Warsh maintained this throughout his press conference and refrained from the dovish image some had anticipated, in particular, mentioned productivity growth, but did not try to argue that AI productivity growth would enable potential cuts. Warsh doesn't believe they have a cruel choice between full employment and stable prices, suggesting he potentially views employment as stable at current levels, with the Fed's current fight solely on inflation. DXY rallied to 100.57 from the 99.65 seen before the rate announcement. As it stands, money markets have returned to fully pricing in one 25bps rate hike by year's end. 

Outside of the US, a cooler-than-expected UK CPI print, which fell beneath BoE forecasts on both a headline and core basis, added pressure to GBP. Services were also cooler than the BoE forecast, but in line/hotter than analyst forecasts. Cable fell to a trough just below the 1.34 mark, dipping below its 200DMA @ 1.3418 before extending to lows of 1.3262 on the late-stage USD strength.

Two-way action was seen in SEK post-Riksbank, which was softer throughout the session despite Riksbank forecasts implying a greater chance of a 2026 hike. SEK pressure was seemingly due to the forecasts and statement being influenced by information up to the 11th of June, as such the fall in energy benchmarks seen in the last few sessions on the US-Iran MOU progress is not accounted for, and therefore the hawkish tilt to the policy forecast is likely to be unwound in the next meeting, if the MoU holds and the energy retreat sticks and/or extends. In response to the Fed, USD/SEK hit highs of 9.5374 from earlier 9.3420 lows.