The US dollar traded mostly steady against major currencies on Wednesday as investors awaited the first monetary policy decision from the Federal Reserve under its new Chair, Kevin Warsh. Markets are bracing for potential volatility as traders assess his policy approach and communication style.

The euro held steady at $1.1605, while the British pound edged lower to $1.3420 and slipped to 86.5 pence against the euro after UK inflation data came in below expectations, potentially giving the Bank of England more room to delay any interest rate increases this year.

Despite those developments, the Federal Reserve meeting remains the dominant market event, prompting investors to avoid taking large positions ahead of the decision.

The Fed is widely expected to leave interest rates unchanged at its first meeting under Warsh. However, markets will closely monitor the policy statement, economic projections, and press conference for any signs that the central bank may be stepping back from a more accommodative stance amid growing inflation concerns.

Jane Foley, Head of FX Strategy at Rabobank, said:

"We have seen several central bank meetings this month, but this one overshadows them all."

She added:

"There is considerable uncertainty about the message Warsh may deliver. Nobody expects a rate change, but the question is whether he will downplay the importance of the dot plot, introduce a new policy framework, or guide markets toward a more dovish outlook."

The so-called "dot plot" reflects policymakers’ expectations for the future path of interest rates.

President Donald Trump appointed Warsh to lead the Federal Reserve after repeatedly criticizing former Fed Chair Jerome Powell for moving too slowly in cutting interest rates.

At present, money markets are pricing in roughly an 80% probability that the Federal Reserve will raise interest rates at some point this year.

Before the United States and Iran reached a temporary agreement to end the conflict in the Middle East, many economists expected the Fed to signal a willingness to tighten policy further in order to prevent higher energy prices from feeding through into broader inflation.

However, with oil prices now trading below $80 per barrel, the central bank may deliver a different message at this meeting.

Attention also turns to the Bank of England and Bank of Japan

The Bank of England is scheduled to announce its policy decision on Thursday and is also expected to leave interest rates unchanged, with investors focusing more on policymakers’ guidance than the decision itself.

That guidance could be influenced by Wednesday’s inflation data, which showed UK inflation holding steady at 2.8% in May, unchanged from April’s 13-month low.

Foley said continued easing in inflation pressures could allow the Bank of England to avoid raising interest rates this year if peak inflation proves lower than previously expected.

Markets are currently pricing in just one UK rate hike before the end of the year.

Meanwhile, the Japanese yen traded at 160.25 per dollar, posting a modest gain but remaining close to levels that have historically triggered concerns about official intervention to support the currency.

The Bank of Japan raised interest rates on Tuesday to their highest level in 31 years, marking another major step in its policy normalization process. The central bank also signaled that further tightening remains possible if inflation pressures linked to higher energy prices persist.

However, policymakers stopped short of providing any clear indication regarding the timing of the next rate increase.

In Europe, the Swedish krona weakened against both the dollar and the euro after the Riksbank left interest rates unchanged.

The central bank said the conflict in the Middle East has increased inflation risks and raised the possibility of future rate hikes, while also noting that core inflation remains subdued and economic activity continues to be weaker than normal.

The euro rose 0.15% to 10.88 Swedish kronor, while the dollar gained 0.19% to 9.383 kronor.

Gold prices edged higher in European trading on Wednesday, extending gains for a fifth consecutive session and remaining close to a two-week high, supported by a weaker US dollar and falling oil prices, while markets continued to digest details emerging from the preliminary agreement between the United States and Iran.

The upside in gold remains limited for now, as investors avoid building large positions ahead of the Federal Reserve’s first policy decision under new Chair Kevin Warsh, seeking clearer guidance on the future path of US interest rates.

Price action

• Gold rose 0.4% to $4,349.67 per ounce, up from an opening level of $4,331.46, after touching an intraday low of $4,317.05.

• At Tuesday’s close, gold gained 0.5%, marking its fourth consecutive daily advance. The metal also reached a two-week high of $4,369.48 per ounce earlier in the session following the preliminary US-Iran peace agreement.

US dollar

The US Dollar Index slipped by less than 0.1% on Wednesday, extending losses for a third straight session as the greenback continued to weaken against a basket of global currencies.

The decline comes amid continued optimism over a temporary peace agreement between the United States and Iran, which has improved risk appetite and reduced demand for the dollar as a preferred safe-haven asset.

Oil prices

Oil prices fell by nearly 2% on Wednesday, extending losses for a fourth consecutive day and hitting their lowest levels in three months as concerns about global supply disruptions continued to ease.

The US-Iran agreement

• President Donald Trump said he may submit details of the preliminary agreement with Iran to Congress.

• Switzerland’s Foreign Ministry said a potential memorandum of understanding between the United States and Iran is scheduled to be signed on June 19 in Bürgenstock, central Switzerland.

• The Wall Street Journal reported that the agreement would allow Iran to resume oil sales immediately upon signing.

• Iran’s Foreign Minister said negotiations would continue for 60 days after the first phase to reach a final agreement covering the nuclear issue and sanctions relief.

• A Reuters source said the agreement includes a $300 billion reconstruction fund, with more than half already allocated to rebuilding projects in Iran.

• The fund contains no government money and remains separate from discussions regarding frozen Iranian assets.

Federal Reserve

The Federal Reserve will conclude its fourth policy meeting of 2026 later today, with markets widely expecting policymakers to leave interest rates unchanged at 3.75% for a fourth consecutive meeting.

The interest rate decision, monetary policy statement, and updated economic projections are due at 18:00 GMT, followed by a press conference from Fed Chair Kevin Warsh at 18:30 GMT.

Markets expect Warsh’s remarks to provide critical clues about the future direction of US interest rates, particularly in light of recent economic developments linked to the Iran conflict and the emerging peace agreement in the Middle East.

US interest rates

• Goldman Sachs expects the Federal Reserve to keep interest rates unchanged throughout 2026 and delay any rate cuts until 2027, citing stronger economic activity and continued job growth.

• With oil prices falling, CME FedWatch data shows the probability of a December rate hike has declined from 67% to 55%.

• Markets currently assign a 99% probability that the Fed will leave rates unchanged at today’s meeting, while the probability of a 25-basis-point rate cut stands at just 1%.

Gold outlook

Market strategist Ilya Spivak said lower oil prices have eased some upward pressure on interest rates and reduced expectations for future rate hikes.

He added that gold’s recent rally has begun to lose momentum as traders await the Federal Reserve’s policy announcement.

Spivak noted that this will be the first Federal Open Market Committee meeting chaired by Kevin Warsh, and investors remain uncertain about how he will balance his traditionally hawkish stance, elevated inflation, and pressure from the White House for a more accommodative policy approach.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday at 1,012.21 metric tons, the lowest level since September 29, 2025.

The British pound edged higher in European trading on Wednesday against a basket of major currencies, extending gains for a third consecutive session against the US dollar and remaining close to its highest level in two weeks, as the greenback stayed under pressure ahead of the Federal Reserve’s monetary policy decision.

Investors are awaiting key UK inflation data due later today, which could play a major role in reshaping expectations for the future path of Bank of England interest rates.

Price action

• GBP/USD rose by less than 0.1% to $1.3434, up from an opening level of $1.3427, after touching an intraday low of $1.3422.

• The pound gained more than 0.1% against the dollar on Tuesday, marking its second consecutive daily advance. It also reached a two-week high of $1.3461 in the previous session, supported by optimism surrounding the US-Iran agreement.

US dollar

The US Dollar Index slipped by less than 0.1% on Wednesday, extending losses for a third straight session as the greenback continued to weaken against a basket of global currencies.

The decline comes amid ongoing optimism over a temporary peace agreement between the United States and Iran, which has improved risk appetite and reduced demand for the US dollar as a traditional safe-haven asset.

The weakness in the dollar also comes ahead of the outcome of the first Federal Reserve meeting chaired by Kevin Warsh, with markets looking for any indication that rate cuts could be considered later this year.

Oil prices

Global oil prices fell by more than 1% on Wednesday, extending losses for a fourth consecutive session and hitting their lowest levels in three months as concerns over global supply shortages continued to fade.

US-Iran agreement

• President Donald Trump said he may submit details of the preliminary agreement with Iran to Congress.

• Switzerland’s Foreign Ministry stated that a potential memorandum of understanding between the United States and Iran is scheduled to be signed on June 19 in Bürgenstock, central Switzerland.

• The Wall Street Journal reported that the agreement would allow Iran to resume oil sales immediately after signing.

• Iran’s Foreign Minister said negotiations would continue for 60 days after the initial phase in an effort to reach a final agreement covering the nuclear issue and sanctions relief.

• A Reuters source said the agreement includes a $300 billion reconstruction fund, with more than half already allocated to projects inside Iran.

• The fund contains no government money and remains separate from discussions regarding frozen Iranian assets.

UK interest rates

• The International Monetary Fund said last month that the Bank of England does not need to raise interest rates and may eventually need to lower them.

• Market pricing currently assigns only a 2% probability of a Bank of England rate hike at Thursday’s policy meeting.

UK inflation data

Investors are closely watching the release of the UK’s May inflation figures later today, as the data could significantly influence expectations for future Bank of England policy decisions.

At 06:00 GMT, headline Consumer Price Index inflation is expected to rise to 3.0% year-over-year in May from 2.8% in April, while core CPI is forecast to increase to 2.7% annually from 2.5% previously.

Outlook for the British pound

According to Economies.com, if UK inflation data comes in below market expectations, the probability of a Bank of England rate hike this year would likely decline, potentially renewing downward pressure on the British pound.

The Japanese yen edged higher in Asian trading on Wednesday against a basket of major and minor currencies, attempting to recover after three consecutive sessions of losses against the US dollar. The move was supported by limited bargain buying, while the US currency remained under pressure ahead of the Federal Reserve’s monetary policy decision.

Dovish remarks from Bank of Japan Deputy Governor Shinichi Uchida helped ease market concerns about the pace of Japanese monetary tightening. Speaking at the post-meeting press conference on behalf of Governor Kazuo Ueda, who is currently hospitalized, Uchida delivered a less hawkish message than investors had expected, reducing the likelihood of another rate hike before December.

Price action

• USD/JPY slipped by less than 0.1% to 160.27 yen, from an opening level of 160.37 yen, after touching an intraday high of 160.44 yen.

• The yen closed Tuesday down by less than 0.1% against the dollar, marking its third consecutive daily decline, following Uchida’s comments.

US dollar

The US Dollar Index fell by less than 0.1% on Wednesday, extending losses for a third straight session as the greenback continued to weaken against a basket of global currencies.

The decline comes amid ongoing optimism surrounding a temporary peace agreement between the United States and Iran, which has improved risk sentiment and reduced demand for the dollar as a traditional safe-haven asset.

The current weakness in the US currency also precedes the outcome of the first Federal Reserve meeting under new Chair Kevin Warsh, with markets looking for any signals that interest rate cuts could be considered later this year.

Oil prices

Global oil prices fell by more than 1% on Wednesday, extending losses for a fourth consecutive session and hitting their lowest levels in three months as concerns about supply disruptions continued to ease.

US-Iran agreement

• President Donald Trump said he may submit details of the preliminary agreement with Iran to Congress.

• Switzerland’s Foreign Ministry said a potential memorandum of understanding between the United States and Iran is scheduled to be signed on June 19 in Bürgenstock, central Switzerland.

• The Wall Street Journal reported that the agreement would allow Tehran to resume oil sales immediately upon signing.

• Iran’s Foreign Minister said that after the initial phase, negotiations would continue for 60 days to reach a final agreement covering the nuclear issue and sanctions relief.

• A source told Reuters that the US-Iran agreement includes a $300 billion fund, with more than half already allocated for reconstruction projects in Iran.

• The fund contains no government money and remains separate from negotiations over frozen Iranian assets.

Japanese interest rates

• On Tuesday, the Bank of Japan raised its benchmark interest rate by 25 basis points to 1.0%, the highest level since 1995, marking another historic step in the normalization of monetary policy in the world’s fourth-largest economy.

• Deputy Governor Shinichi Uchida said the central bank will continue raising rates gradually in response to developments in economic activity and inflation, stressing that policymakers will not rush into aggressive tightening.

• Uchida added that it is currently difficult to determine the exact scale of future rate increases and that the bank will carefully assess incoming economic data before taking further action.

• Market pricing for a 25-basis-point rate hike at the July meeting dropped from 50% to 25%.

• Economic surveys indicate that the most likely scenario remains another 25-basis-point increase in December.

• Investors will continue to monitor inflation, employment, and wage data for further clues on the future path of Japanese monetary policy.