- The Bank of Japan is ready to raise the overnight interest rate.
- Speculators are closing their long positions in the US dollar.
The US dollar opened with a gap lower, which is unlikely to close any time soon. Donald Trump announced an agreement with Iran and the reopening of the Strait of Hormuz starting June 19. The president of the United States stated that the agreement would bring peace to the entire region. fell below $84 per barrel, while speculators began to actively sell the dollar.
On June 9, hedge funds and asset managers held the highest net long positions in US dollars since February 2025. The de-escalation in the Middle East is reversing this trend, with the dollar being sold as a safe haven asset and the currency of a net energy exporter.
Over the past week, markets have reduced the probability of a key rate hike before the end of the year from 75% to 50%. The first FOMC meeting chaired by Kevin Warsh risks reducing that figure even further. While in 2025 the Federal Reserve cut rates due to the weakness of the labor market, the “doves” no longer have that trump card. The new Federal Reserve chairman will most likely emphasize the temporary nature of high inflation. In other words, consumer prices, after oil, have peaked and will now fall.
Such rhetoric aligns with the White House mantra about temporary inflation and will lead investors to question whether Kevin Warsh can maintain the independence of the Federal Reserve. Otherwise, the bears will have a new trump card.
Ahead of the FOMC meeting, investors' attention will be focused on the Bank of Japan meeting. It is expected to raise the overnight rate from 0.75% to 1%, the highest level since 1995. Despite a slowdown in consumer prices, producer prices have accelerated significantly. Coupled with wage growth, economic strength and the weakness of the yen, this necessitates a tightening of monetary policy.
However, news of Kazuo Ueda's hospitalization initially caused the odds of a one-day rate increase to drop from nearly 100% to 73%. They later got up. Investors will be attentive to signals from the deputy governors of the Bank of Japan about the continuation of the cycle, which will influence the fate of Japan.
The third week of June will be packed with central bank meetings. In addition to the United States and Japan, the United Kingdom, Sweden, Norway, Switzerland, Australia and other regulators will announce their interest rate decisions.
He FxPro Analyst team
