|
The war that shaped this entire year may finally be ending. The US and Iran signed a peace deal this week to reopen the Strait of Hormuz and lift oil sanctions. Oil collapsed to around $75. Equities hit record highs on the news. And then, two days later, Kevin Warsh delivered his first FOMC meeting as Chair and reminded everyone that the inflation damage is already done: the Fed held rates, flipped its dot plot from a cut to a hike, and slashed its statement to 130 words. The Bank of Japan raised rates to a 31-year high the same week. This was a hinge point for the year.
|
|
The headline event was the resolution of the conflict that started on February 28. The US and Iran reached an agreement to reopen the Strait of Hormuz and gradually lift oil sanctions. Markets had been pricing this optionality for weeks, but the actual signing removed the war premium that had defined nearly every market this year. Oil fell hard, from the mid-$80s to around $75 on WTI, the lowest since before the war began. The S&P 500 jumped 1.7 percent and the Nasdaq surged 3.1 percent on the news, with the Dow and Europe's STOXX 600 both touching record highs early in the week.
Then came Warsh. His first FOMC meeting as Chair concluded Wednesday with a unanimous 12-0 hold at 3.50 to 3.75 percent, a sharp contrast to the 8-4 split in April. But the projections underneath were the story. The dot plot flipped: the median policymaker now sees the funds rate ending 2026 at 3.8 percent, up from 3.4 percent in March, which implies a hike rather than the cut previously penciled in. Nine of 18 participants project at least one hike this year. Most striking, 17 of 18 judged the risks to their inflation forecast to be tilted to the upside. The committee revised its year-end PCE forecast to 3.6 percent, up sharply from 2.7 percent in March.
Warsh also changed how the Fed communicates. The statement was cut to just 130 words, down from 341 in April, stripping out forward guidance and the easing bias entirely. He declined to submit his own dot, consistent with his long-standing criticism of the tool, and announced five task forces to overhaul Fed operations, communications, and the balance sheet. The market read all of it as hawkish: the major indexes closed down around 1 percent after the decision, the dollar touched a one-year high, and Treasury yields firmed. The key insight from Goldman Sachs Asset Management captured it well: the hawkish shift was not just about higher energy prices, because even with oil falling, half the committee expects hikes, reflecting strong labor and inflation data.
The central bank cluster did not stop there. The Bank of Japan raised rates to a 31-year high on Tuesday, a historic move, though Governor Ueda missed the meeting for medical treatment. Despite the hike, the yen weakened because the post-Fed dollar rebound overwhelmed it. The Bank of England held on Thursday, and the pound slipped. Three major central banks, three different messages, all in one week.
|
|
|
Fed Tone: Hawkish Hold
Unanimous on the Hold, Divided and Hawkish on the Path
The defining tension of Warsh's first meeting: the committee voted 12-0 to hold, but the dot plot and risk assessments were aggressively hawkish. Three numbers are easy to conflate. The 12-0 vote is the voting members agreeing to hold today. The dot plot is the wider group of 18 participants, who split 9 above the current level, 8 at it, and 1 below for 2026. And the risk skew is the most telling: 17 of 18 saw inflation risks to the upside, none to the downside. The peace deal removes the oil shock going forward, but the Fed is signaling that the inflation already in the system, combined with a resilient labor market, may require tightening regardless of where oil goes next. Compared to last meeting, this is a clear hawkish shift: April still carried an easing bias, June erased it entirely.
Why it matters for markets: even with the war ending, the Fed is not signaling relief. For USD this is supportive, for gold a headwind, and for US30 a reason the record-high rally paused. CME FedWatch now prices a 60 percent chance of a hike by October.
|
|
|
|
US30 (Dow Jones) |
Record high, then -1% post-Fed |
A tale of two halves. Early in the week, the Dow touched a record high alongside the STOXX 600 as the Iran peace deal sparked one of the biggest risk-on rallies of the year, with the Nasdaq up 3.1 percent on Monday alone. Then Wednesday's hawkish Warsh FOMC reversed the mood, sending the major indexes down around 1 percent. By Thursday the market was clawing some of it back, helped by an Intel-Apple chip-manufacturing announcement. The week was effectively a referendum on whether peace (bullish) outweighs a hawkish Fed (bearish). The fact that indexes held near record highs despite the dot-plot flip is itself a constructive signal. Markets are closed Friday for Juneteenth, shortening the week.
Price action suggests: resilience at record highs. The peace dividend is providing a floor while the hawkish Fed caps the upside. That tension is likely to define the index for the rest of the summer.
|
|
Gold (XAUUSD) |
Close ~$4,220 (-4% wk) |
Gold was the cleanest loser of the week. The metal slid toward $4,220, pressured from three directions at once: the peace deal removed the geopolitical safe-haven bid, the hawkish Fed pushed the dollar to a one-year high, and firm Treasury yields raised the opportunity cost of holding a non-yielding asset. This is the textbook combination that hurts gold, and it played out cleanly for once. The metal has now broken decisively below the $4,400 to $4,500 zone that held as the floor of its multi-month consolidation since March. The structural central-bank demand story remains intact over the long term, but in the near term the cyclical headwinds are dominant.
Price action suggests: a confirmed breakdown of the year-long consolidation. The next support zones to watch are around $4,180 and $4,000. A dovish data surprise would be needed to repair the structure.
|
|
WTI Crude Oil |
~$75.70 (-12% wk) |
The war premium evaporated. With the US-Iran agreement to reopen the Strait of Hormuz signed, WTI collapsed roughly 12 percent on the week to around $75.70, its lowest since before the conflict began. This is the single most important price move of the quarter, because oil has been the master variable driving inflation, Fed policy, and cross-asset correlations all year. As Fitch and Wood Mackenzie had warned, the market is now repricing toward an oversupply scenario as Iranian barrels return to global markets. The structural war-era range of $85 to $108 has been broken to the downside, and the conversation now shifts to how low oil can go as supply normalizes against summer demand.
Price action suggests: a regime change from "war premium" to "supply normalization." The key question now is whether OPEC+ acts to defend prices or lets the market find a new, lower equilibrium.
|
|
EUR/USD |
Dollar at one-year high |
The euro weakened as the dollar surged to a one-year high after the hawkish Fed. The dollar index strength was the dominant FX story of the week, driven by the dot-plot flip and Warsh's inflation-fighting messaging. The ECB, having held earlier this month with a data-dependent stance, now faces a widening policy gap with a Fed that is signaling potential hikes. With oil falling sharply, the eurozone's energy-inflation pressure eases, which paradoxically reduces the ECB's need to hike and weakens the euro's relative case further.
Price action suggests: the path of least resistance is lower while the dollar holds its post-Fed strength. A break of recent lows would confirm the downtrend; stabilization needs a softer US data run.
|
|
GBP/USD |
Slipped on BoE hold |
Cable slipped after the Bank of England held rates on Thursday. With UK inflation pressures easing as oil falls, the BoE had room to stay on hold, which removed some of the hawkish premium that had supported sterling. Combined with the broadly stronger dollar post-Fed, the pound came under pressure. The relative central-bank story now favors the dollar over the pound, at least until UK data forces a reassessment.
Price action suggests: downward pressure as the dollar dominates. The pair is now driven more by the US side of the equation than the UK side.
|
|
USD/JPY |
Above 161 despite BoJ hike |
The most fascinating pair of the week. The Bank of Japan raised rates to a 31-year high on Tuesday, a genuinely historic tightening, and yet USDJPY pushed above 161 because the post-Fed dollar rebound completely overwhelmed it. This is a perfect illustration of relative policy: even a major BoJ hike could not lift the yen when the Fed simultaneously turned more hawkish and the dollar hit a one-year high. The BoJ explicitly warned of potential intervention at any time, putting the pair back into the danger zone just above the levels that triggered action in late April.
Price action suggests: the relative-policy gap is so wide that even a BoJ hike cannot reverse it. With the pair above 161 and intervention warnings live, this is the highest-risk setup in FX right now.
|
|
USD/CAD |
Oil crash pressures loonie |
The oil crash finally caught up with the loonie. After weeks of the rate-differential story dominating, the 12 percent collapse in oil this week put real pressure on the Canadian dollar through the petro-currency channel, pushing USDCAD higher. With the Bank of Canada on a more dovish path than a hawkish Fed, and now with oil falling sharply, both legs of the trade point in the same direction for the first time in weeks: a stronger US dollar against the loonie. This is the cleanest the directional setup has been in this pair all quarter.
Price action suggests: both the oil leg and the rate-differential leg now align to the upside. If oil stays low and the Fed stays hawkish, the path of least resistance is higher.
|
|
→ Looking Ahead: The Week of June 22
| MON 22 |
US Existing Home Sales (May), Fed speakers in first post-meeting week, OPEC+ reaction watch |
| TUE 23 |
US Consumer Confidence (June), S&P Flash PMIs, Warsh testimony schedule watch |
| WED 24 |
US New Home Sales, Micron earnings (after close), oil inventory data |
| THU 25 |
US Q1 GDP (third estimate), Durable Goods, Initial Jobless Claims, FedEx earnings |
| FRI 26 |
US May PCE inflation (the Fed's preferred gauge), Personal Income & Spending, Michigan sentiment final |
| ALL WK |
Hormuz reopening logistics, OPEC+ response to oil drop, BoJ intervention watch above 161 |
|
|
Go Deeper
|
Get this every Sunday, free
FedAndMarkets is a free weekly macro letter built for traders with day jobs. Calm, clear, and scenario-based context across seven markets, delivered every Sunday morning.
One email every Sunday. Seven markets. Zero signals.
|
|
|
This week may be remembered as the turning point of 2026. The war that drove inflation, oil, and Fed policy for four months appears to be ending, and yet the Fed used its first meeting under new leadership to remind markets the inflation problem outlives the war that caused it. The peace dividend and the hawkish Fed are now in direct tension, and that tension will define the second half of the year. With oil collapsing and the dollar at a one-year high, the simple trades have changed. Take time to reassess your framework now that the master variable, oil, has shifted regime. Stay patient, manage size, and let the new landscape come into focus before committing to a strong view.
Fed'n Markets
|
|
