US

USD is building on yesterday’s gains triggered by the FOMC hawkish hold. Fed funds futures brought forward the timing of a 25bps hike to September from December and raised odds of 50bps of total tightening in the next twelve months.

The dollar index (DXY) can edge higher. US-G6 two-year bond yields are consistent with DXY trading closer to 102.00 and US economic outperformance should keep rate differentials supportive of the dollar.

As was widely expected, the FOMC left the target range for the funds rate unchanged at 3.50%-3.75% for a fourth straight meeting. The decision was unanimous, and the FOMC statement scrapped its implicit easing bias.

The FOMC statement painted a constructive macro backdrop. The FOMC acknowledged that “economic activity is expanding at a solid pace” and stressed the favorable supply-side backdrop, highlighting that “productivity growth and capital investment are strong”. That implies the economy can grow faster without generating inflation.

The updated summary of economic projections point to a near-term inflation shock, slower growth, and better labor market conditions. The FOMC 2026 median projections for headline and core PCE were revised sharply higher to 3.6% (prior: 2.7%) and 3.3% (prior: 2.7%), respectively. However, the FOMC continues to see inflation return to the 2% target by 2028. Real GDP growth was tweaked -0.2ppt lower to 2.2% in 2026, but the rest of the forecast horizon was left broadly unchanged. Finally, the unemployment rate was revised -0.1ppt lower to 4.3% in 2026.

The dot plot flipped hawkish. 9 of 18 officials penciled in at least one rate increase by year end versus a median projection of one cut previously. The longer run policy rate was tweaked lower to 3.063% vs. 3.125% previously.

One dot is missing. Fed Chair Kevin Warsh confirmed he did not submit a projection, reflecting his skepticism of forward guidance. Instead, Warsh reaffirmed the Fed’s unwavering commitment to its 2% inflation target. The comment suggests Warsh is willingness to keep rates higher for longer to ensure inflation returns to target.

Warsh announced five task forces to re-examine core functions of the central bank: (i) Fed communications, (ii) the Fed’s balance sheet, (iii) use and reliance on existing data sources, (iv) productivity and jobs in an era of transformation, (v) the Fed’s inflation frameworks.

The Fed under Warsh is shifting toward strategic ambiguity. Less explicit forward guidance means markets must infer both the direction and the magnitude of policy changes from incoming data. Under forward guidance, the Fed signaled the likely direction of policy and markets mainly adjusted the magnitude of expected moves as data evolved.

Bottom line: strategic ambiguity will likely result in bigger swings to Fed funds futures especially around policy-relevant data releases.

UK

The Bank of England (BOE) is widely expected to keep the policy rate at 3.75% for a fourth straight meeting (12:00pm London, 7:00am New York). A 7-2 vote split is anticipated, compared with an 8-1 split at the last April 30 meeting. Megan Greene is seen joining Huw Pill in supporting a 25bps hike. There is no updated economic projection associated with this meeting.

The swaps curve price in a full 25bps BOE rate rise to 4.00% in November. We expect GBP/USD to edge lower and stabilize closer to 1.3100, reflecting a stronger US growth outlook relative to the UK and the murky UK political backdrop.

SWITZERLAND

The Swiss National Bank (SNB) delivered a neutral hold. As was widely expected, the SNB left the policy rate unchanged at 0.00% for a fourth consecutive meeting.

SNB nudged up its inflation forecast through Q1 2027, but they remain well within the range of price stability of less than 2% per annum. As such, the SNB can afford to keep rates at 0.00% for some time which is a headwind for CHF. The swaps curve continues to price-in about 50% odds of a 25bps rate hike to 0.25% in the next twelve months.

NORWAY

The Norges Bank delivered a hawkish hold. The Norges Bank left the policy rate unchanged at 4.25% (widely expected) and firmed up its guidance of another hike “at one of the forthcoming monetary policy meeting.”

The Norges Bank’s updated policy rate path is a little higher in line with the pricing from the swaps curve, offering limited fresh support for NOK. The Norges Bank now sees the policy rate peak at 4.55% by year-end vs. 4.35% in March, adding “a somewhat tighter monetary policy stance will likely be needed to return inflation to target within a reasonable time horizon.”

INDONESIA

Bank Indonesia (BI) delivered on expectations and raised rates 25bps to 5.75%. BI delivered an off cycle 25bps hike just over a week ago and surprised markets with a jumbo 50bps hike on May 20 to maintain the stability of the rupiah. In our view, BI rate hikes and ongoing FX intervention will help curtail IDR weakness.

PHILIPPINES

Philippine central bank (BSP) delivered a back-to-back 25bps hike to 4.75% (expected). BSP warned that “inflationary pressures remain strong” and sees average headline inflation breaching the 4.0% tolerance ceiling in both 2026 and 2027. Governor Eli Remolona signaled the bank may raise rates again by 25bps at the next meeting in August. Markets price-in 150bps of tightening in the next twelve months, helping curb the slide in PHP.

TAIWAN

Taiwan’s central bank (CBC) kept the policy rate unchanged at 2.00%, marking two years of policy stability (expected). CBC raised its 2026 real GDP growth and CPI inflation forecasts, firming up odds of a hike by year-end and underpinning TWD.

BRAZIL

As was widely expected, Banco Central do Bazil (BCB) delivered a third straight 25bps cut to 14.25%. BCB lifted its inflation forecast, implying a higher bar for additional cuts. In our view, BCB has room to remove policy restrictiveness as the policy rate is well above the bank’s estimate of the neutral rate (8%, or 5% in real terms).

The swaps curve price in nearly 50bps of cuts in the next twelve months. Regardless, Brazil’s strategic exposure to commodities linked to energy, AI, and defense will continue to bode well for BRL. BRL is the top performing major currency so far this year.