Dollar Climbs as Fed Rate-Hike Bets Build

The dollar held near a two-month high after Kevin Warsh’s first Fed meeting raised expectations of a US rate rise this year. Sterling edged higher to $1.331, while the yen weakened near 160 per dollar as Japanese officials warned they were ready to act. The S&P 500 turned sharply lower on Wednesday, while the FTSE 100 made modest gains. Oil fell sharply after the US-Iran interim ceasefire deal, while spot gold recovered early on Thursday.

Equities

The FTSE 100 closed 0.14% higher on Wednesday at 10,508.61, while the FTSE 250 added 0.16%, as strength in mining and banking stocks offset weakness in energy and consumer-focused shares. Investors assessed UK inflation data showing consumer prices held at 2.8% in May, a 13-month low, ahead of the Bank of England’s interest rate decision.

Barclays shares closed 3.4% higher on Wednesday after Bank of America raised its price target for the lender. The banking sector provided the strongest support for the FTSE 100, reflecting improved sentiment towards UK financial stocks following the inflation data release.

Housebuilders also enjoyed a strong session, with the sector rising 3.2% after fresh figures showed UK house prices increased in the year to April. Lower inflation expectations prompted investors to reduce bets on further rate increases, providing support for property-related shares.

In contrast, BP closed 1.6% lower on Wednesday and Shell finished down 1.0%, pulling the energy sector 1.2% lower. The declines came despite renewed uncertainty surrounding the proposed US-Iran peace agreement and a modest recovery in oil prices. Consumer-facing sectors also struggled, with personal goods stocks falling 2.3% and the personal care, drug and grocery sector losing 1.0%.

In the United States, Wall Street closed sharply lower on Wednesday after the Federal Reserve kept interest rates unchanged but signalled that further increases remain possible later this year. The S&P 500 fell 1.21% to 7,420.10, the Nasdaq Composite dropped 1.34% to 26,021.66 and the Dow Jones Industrial Average lost 0.98% to 51,492.55.

The market reaction followed comments from new Federal Reserve Chair Kevin Warsh, who emphasised the central bank’s commitment to controlling inflation. Updated projections showed several policymakers expect at least one further rate increase before the end of 2026.

SpaceX shares closed 4.9% lower on Wednesday, marking the company’s first decline since its stock market debut last week. CME Group fell 3.5% after announcing that chief executive Terry Duffy will step down on 1 March and become executive chairman.

Allbirds delivered one of the session’s strongest gains, surging 39% after rebranding itself as Smartbird and appointing former Amazon executive Nadia Carlsten as chief executive. Regional bank shares also came under pressure, with the KBW Regional Banking Index falling 1.8%, while homebuilder stocks weakened as investors adjusted to the prospect of higher borrowing costs.

Forex & Commodities

The US dollar held near a more than two-month high early on Thursday after the Federal Reserve kept interest rates unchanged at 3.50%-3.75% but signalled a tougher stance on inflation. The dollar index was little changed at 100.2 after jumping in the previous session to its strongest level since 31 March.

Sterling moved higher early on Thursday to $1.331, after touching a two-month low earlier in the session. The euro also edged up to $1.152, while the yen weakened as far as 160.8 against the dollar, prompting Japanese officials to repeat that they were ready to act against sharp currency moves.

The Fed’s latest projections showed nine of 19 policymakers now expect a rate rise this year, compared with none three months ago. Traders priced an 85% chance of a US rate increase in December, helped by stronger US retail sales data. The Bank of England is expected to keep rates unchanged at 3.75% later today as it assesses the inflation impact of the tentative US-Iran truce.

Spot gold rose 1% early on Thursday to $4,298 an ounce, recovering part of Wednesday’s fall after oil prices dropped and eased some inflation concerns. Silver rose to $68.69, platinum climbed to $1,752 and palladium advanced to $1,330.

Oil fell sharply early on Thursday after the US and Iran signed an interim ceasefire agreement. Brent crude dropped 2.69% to $77.41 a barrel, while WTI fell 3.07% to $74.43, both returning to early-March levels.