Fed rate warning and renewed Hormuz closure reshape global markets
Global markets ended a volatile week on June 21 after a hawkish shift from the U.S. Federal Reserve strengthened the dollar, while Iran’s renewed declaration that it had closed the Strait of Hormuz revived concerns over oil supplies and inflation.
The Fed kept its benchmark rate at 3.50% to 3.75% on Wednesday, but new projections showed nine of 19 policymakers expected at least one increase before year-end. Six projected more than one quarter-point rise, a sharp change from March, when none anticipated higher rates in 2026.
The Federal Open Market Committee said inflation remained elevated, partly because of energy supply shocks, and added that it “will deliver price stability.” The decision lifted U.S. Treasury yields and pushed the dollar to a 13-month high, with the currency heading for its strongest weekly advance in a month.
The yen bore much of the dollar’s rise even after the Bank of Japan increased its overnight policy rate to 1% from 0.75%, the highest level since 1995. Deputy Governor Shinichi Uchida said the bank needed to remain alert to upward price risks so it would not “fall behind the curve.”
The yen weakened to about 161.3 per dollar by Friday, close to levels last seen in 1986 and high enough to renew warnings that Japanese authorities could intervene in the foreign-exchange market.
Other central banks also remained cautious. The Reserve Bank of Australia held its cash rate at 4.35% and said further tightening could still be needed. The Bank of England voted 7-2 to keep its rate at 3.75%, while two members supported an increase to 4%.
British inflation held at 2.8% in May, below forecasts, but Bank of England Governor Andrew Bailey said earlier energy increases meant “there’s already some inflationary pressure in the pipeline.” The Swiss National Bank held its rate at zero and said it had an increased willingness to counter excessive franc appreciation.
Economic data offered mixed signals. U.S. retail sales rose 0.9% in May, according to the Commerce Department, showing continued strength in consumer spending. Housing starts fell 15.4% to an annual rate of 1.177 million units, their lowest level in six years.
Japan’s headline consumer inflation was 1.5% in May, while the measure excluding fresh food rose 1.4%, according to the Statistics Bureau. The figures followed the BOJ’s rate increase but did little to reverse the yen’s decline.
Equity markets recovered from the Fed-driven selloff. The S&P 500 gained about 0.9% for the holiday-shortened week, the Nasdaq rose 2.4% and the Dow added 0.7%, supported by a Thursday rally in semiconductor shares.
Japan’s Nikkei climbed 7.6%, its strongest weekly gain in nearly two years, while Europe’s STOXX 600 advanced 0.4%. Germany’s DAX joined an early-week relief rally after the preliminary U.S.-Iran agreement reduced immediate concerns about energy supplies.
Commodities moved in the opposite direction for much of the week. Brent crude fell about 8% to near $80 a barrel as tankers resumed limited passage through Hormuz and traders anticipated more Gulf supply.
Gold headed for a third weekly decline, while silver, platinum and palladium also fell as the stronger dollar and higher-rate expectations reduced demand for assets that do not pay interest.
Bitcoin traded near $62,500 on Friday and Ether near $1,700, with both under pressure after the Fed signalled that borrowing costs could rise rather than fall.
The geopolitical picture changed again over the weekend. Iran’s Islamic Revolutionary Guard Corps announced that Hormuz had been closed in response to Israeli strikes in Lebanon and alleged violations of an interim U.S.-Iran agreement.
Kpler data showed five vessels passed through the strait on Sunday, down from 26 on Saturday. The U.S. military said commercial traffic was continuing, meaning Iran’s declaration had not produced a confirmed complete shutdown.
The distinction remains important because roughly one-fifth of global oil and liquefied natural gas supply normally moves through Hormuz. A prolonged reduction in traffic could lift oil prices, raise freight and insurance costs and renew inflation pressure, particularly in energy-importing economies in Europe and Asia.
Markets now turn to Canadian inflation on Monday and global business-activity surveys on Tuesday. Australian inflation and a BOJ policy summary are due Wednesday.
The United States releases personal consumption expenditures, or PCE, the Fed’s preferred inflation measure, on Thursday. Final U.S. first-quarter growth data, durable-goods orders and the Bank of Mexico’s rate decision are also scheduled.
Tokyo inflation follows on Friday, while markets will continue tracking vessel traffic through Hormuz and developments in U.S.-Iran negotiations for signs that the renewed disruption is either easing or becoming more severe.
