The Federal Reserve (Fed) maintained its benchmark interest rate at 3.5%-3.75% during its latest meeting, with newly appointed Chair Kevin Warsh emphasizing a hawkish stance and a strong commitment to restoring price stability. Nearly half of Federal Open Market Committee (FOMC) members anticipate at least one additional rate hike this year, according to the Fed’s updated economic projections and the June Summary of Economic Projections, though Warsh’s own forecasts were not included in the Dot Plot [1][2][3][4]. This policy outlook triggered a broad strengthening of the US Dollar (USD) against major peers, including the New Zealand Dollar (NZD), Australian Dollar (AUD), and Euro (EUR), as markets quickly priced in a strong chance of a 25-basis-point rate hike before year-end [1][2][3]. US Treasury yields also rose following the Fed’s announcement [3].
Despite solid domestic data, the NZD/USD pair traded around 0.5765, down 0.07% on the day, as the Kiwi struggled to extend its rebound. New Zealand’s GDP expanded by 0.8% quarter-on-quarter in Q1, with annual growth reaching 1.5%, surpassing the 1.1% consensus forecast. However, the NZD’s upside was capped by the Fed’s hawkish tone and the resulting USD strength [1]. The AUD/USD pair remained in positive territory near 0.7010, supported by hawkish rhetoric from Reserve Bank of Australia (RBA) Governor Michele Bullock, who reiterated that further rate hikes cannot be ruled out due to persistent inflation above the 2–3% target. However, the AUD’s gains were limited by the prospect of further Fed tightening [2].
The Euro (EUR) was also pressured, trading flat at 1.1504 against the USD after failing to break above 1.1525. The Fed’s hawkish hold erased all EUR/USD gains from the previous seven sessions. In the Eurozone, the German IFO institute projected inflation at 2.9% for 2024 and 2.7% for 2027, with economic growth expected at 0.8% for both years, the latter revised down from 1.2% [3].
In Switzerland, the Swiss National Bank (SNB) left its main policy rate unchanged at 0%, citing relatively low but rising inflation (0.6% in May, up from 0.1% in February) due to higher energy prices linked to the Iran conflict. The SNB signaled readiness to intervene in FX markets if the franc appreciates excessively, as interest rate differentials with other economies have widened and the franc has depreciated somewhat. The SNB expects Swiss economic growth of around 1% in 2026 and 1.5% next year, but warned that global economic uncertainty, especially regarding U.S. trade policy and Middle East developments, remains a key risk [4].
A notable geopolitical development was the preliminary agreement between the US and Iran, confirmed by the White House and reported by the BBC. US President Donald Trump and Iranian President Masoud Pezeshkian signed a memorandum of understanding aimed at ending the conflict involving the US, Israel, and Iran, including the gradual reopening of the Strait of Hormuz. This news improved market sentiment and eased safe-haven demand for the USD and CHF, though the Fed’s hawkish outlook ultimately dominated FX market direction [1][2][4].
CONCLUSION
The Fed’s hawkish hold and signals of potential rate hikes later this year have strengthened the US Dollar and weighed on major peers, despite positive economic data and easing geopolitical risks. Central banks in Australia, Switzerland, and the Eurozone are navigating persistent inflation and global uncertainty, with the SNB prepared to intervene if necessary. Market sentiment remains cautious, with US monetary policy and Middle East developments as key drivers.