Overview

On 18 June 2026 the U.S. dollar reached its highest level since mid‑May 2025, climbing 0.7 % to 100.83 on the dollar index at 16:56 ET (20:56 GMT). The rally followed the Federal Reserve’s policy meeting in which the Federal Open Market Committee (FOMC) left the target federal‑funds rate unchanged at 3.50 %‑3.75 % but released a markedly more hawkish Summary of Economic Projections (SEP).

Federal Reserve actions

  • The FOMC’s dot‑plot now projects the federal‑funds rate at 3.8 % at the end of 2026, up from the previous 3.4 % forecast released in March.
  • Nine of the 18 participants penciled in at least one 25‑basis‑point rate hike for 2026, shifting the overall projection from “at least two cuts” to “one hike.”
  • New Fed Chair Kevin Warsh, speaking after the vote, announced the creation of five task forces covering: (i) communications and future press‑conference format, (ii) balance‑sheet policy, (iii) data‑source usage, (iv) productivity and employment in the AI era, and (v) the inflation‑framework (which will retain the 2 % target).

Market reaction

  • The S&P 500 fell 1.2 %, marking its worst performance on a first‑day decision for a new Fed chair.
  • Treasury yields rose sharply as investors sold government bonds.
  • José Torres, senior economist at Interactive Brokers, said Chair Warsh “disputed the traditional trade‑offs between policy tightness and employment health,” and noted that a “tempered long end alongside a strengthening greenback” signals tighter financial conditions for short‑tenor yields.

International monetary developments

  • The Bank of England’s Monetary Policy Committee kept the Bank Rate at 3.75 % as expected; the sterling slipped to $1.3203, down 0.6 % at the same timestamp.
  • Sanjay Raja, chief UK economist at Deutsche Bank, indicated the BoE may keep rates on hold through the year and resume cuts from spring 2027.
  • The Japanese yen weakened further, with USD/JPY moving above the 160 level that has previously prompted intervention; Japan’s Chief Cabinet Secretary Minoru Kihara said the government is “ready to respond appropriately” to currency moves.

U.S.–Iran diplomatic development

  • President Donald Trump and Iranian official Masoud Pezeshkian signed a memorandum of understanding (MoU) at Versailles, France.
  • The MoU halts military operations on all fronts, including Lebanon, and initiates a 60‑day negotiation window toward a final agreement.
  • Iran reaffirmed it will not procure or develop nuclear weapons and will dispose of enriched material through a mutually agreed mechanism during the negotiation period.
  • The agreement also calls for the Strait of Hormuz to be reopened without tolls or charges for the 60‑day period.

Implications

The combination of a more aggressive Fed outlook and the dollar’s strength outweighed the positive risk‑sentiment boost from the U.S.–Iran diplomatic breakthrough, leading to equity sell‑offs and higher short‑term U.S. yields while other major currencies weakened.