Fed rate outlook boosts US dollar ahead of BoE and SNB decisions

The US Dollar strengthened sharply against major currencies on Wednesday after investors digested the Federal Reserve’s latest policy statement, revised economic projections, and comments from Chairman Kevin Warsh following the central bank’s policy meeting.

The US Dollar Index gained nearly 1% during the session, climbing above 100.50 and reaching its highest level since late March.

Although the index eased slightly during Thursday’s European trading session, it continued to hold above the psychologically significant 100.00 level.

The currency’s gains came as financial markets interpreted the Federal Reserve’s communication as a signal that policymakers remain focused on controlling inflation despite maintaining interest rates within the existing 3.50%-3.75% target range.

Fed maintains hawkish messaging

According to the latest Federal Reserve policy statement, the central bank struck a more hawkish tone relative to historical norms despite leaving rates unchanged.

The statement highlighted that inflation remains elevated relative to the Fed’s 2% target while also pointing to strong productivity growth, robust capital investment, and resilient economic activity despite uncertainty linked to developments in the Middle East.

Warsh reaffirms commitment to inflation target

During his post-meeting press conference, Chairman Kevin Warsh reiterated the Federal Reserve’s commitment to achieving its long-term inflation objective.

Warsh stated that 2% inflation remains the Fed’s “long-held objective” and said there is “no reason” to reconsider that target until it is achieved.

He also emphasized that inflation is “primarily determined by monetary policy.”

The chairman acknowledged that policymakers have moved away from explicit forward guidance and are placing greater emphasis on incoming economic data and market developments when making future decisions.

US-Iran agreement draws market attention

Meanwhile, geopolitical developments remained in focus after the White House stated late Wednesday that US President Donald Trump and Iran’s Masoud Pezeshkian signed a Memorandum of Understanding aimed at ending the US-Israel war on Iran, according to a BBC report.

Iranian officials reportedly stated that the country would “not return to prewar conditions” and that Tehran plans to charge ships transiting the waterway following a 60-day toll-free period outlined in the agreement.

Gold and silver react to Fed outlook

Precious metals experienced volatility following the Federal Reserve’s announcement.

Gold dropped more than 1.5% after the Fed event before stabilising near $4,300 during Thursday’s European session.

Silver moved higher during Asian trading, with XAG/USD trading near $69.15 per ounce.

The advance appeared to reflect a cautious recovery rather than the start of a broader breakout.

The metal received support from a wider rebound in precious metals and from lower oil prices, which eased inflation concerns following the interim US-Iran agreement.

However, gains remained limited as investors assessed the Federal Reserve’s projections, which revived the possibility of another rate increase later this year.

Major currency pairs stabilise

Among major currency pairs, GBP/USD fell approximately 1% on Wednesday before recovering modestly to trade above 1.3300 during Thursday’s European session.

Investors are closely watching the Bank of England’s policy decision, with markets widely expecting the central bank to keep its benchmark rate unchanged at 3.75%.

Attention is expected to focus on the voting split and policy statement language, as no press conference is scheduled.

EUR/USD erased the previous week’s gains after falling roughly 0.9% on Wednesday.

The pair recovered modestly to trade around 1.1530 on Thursday morning.

USD/CHF traded slightly below 0.8000 after Wednesday’s rally, while markets anticipated that the Swiss National Bank would leave its policy rate unchanged at 0%.

Meanwhile, USD/JPY remained above 160.50.

Japanese Chief Cabinet Secretary Minoru Kihara said on Thursday that authorities stand ready to respond appropriately to currency movements whenever necessary, following recent volatility in the Japanese yen.