Fed Holds Rates Under Chair Warsh but Pivots to Hawkish Stance

The EUR/USD pair regained momentum during Thursday’s early Asian trading session, trading near 1.1515 after recovering from recent losses. The euro strengthened against the US dollar as investor sentiment improved following progress toward a US-Iran peace agreement. Market attention now turns to upcoming US economic data, including the Initial Jobless Claims report, as traders assess the next direction for the currency pair.

According to reports, the White House confirmed that US President Donald Trump and Iranian President Masoud Pezeshkian signed a memorandum of understanding aimed at ending the conflict between the US, Israel, and Iran. The agreement was reportedly signed electronically after senior officials from both sides completed their signatures earlier in the week.

Meanwhile, the US Federal Reserve kept its benchmark interest rate unchanged at its June policy meeting, maintaining the federal funds rate target range at 3.50%–3.75%, in line with market expectations. The decision was unanimous and marked the first policy meeting under new Fed Chair Kevin Warsh.

Fed officials indicated that inflation risks remain a key concern, particularly due to potential economic effects from the Iran conflict. During his press conference, Warsh emphasized that maintaining price stability would remain the central bank’s primary focus.

Investors will continue monitoring geopolitical developments, upcoming US economic data, and the Fed’s policy outlook for fresh direction in the currency market.

Gold attracted fresh buying interest during Thursday’s Asian session, climbing back above the $4,300 level after suffering a sharp decline following the Federal Reserve’s policy decision. The precious metal found support as optimism surrounding a potential US-Iran peace agreement triggered profit-taking in the US dollar.

The improved risk environment weakened demand for the US dollar, which had strengthened after the Federal Reserve adopted a more hawkish tone on Wednesday. The dollar retreated from its highest level since late March, providing a boost for gold prices.

The Federal Reserve, as widely expected, kept interest rates unchanged at a target range of 3.50%–3.75% during its first meeting under new Chair Kevin Warsh. However, policymakers removed language suggesting a preference for further rate cuts and signaled a stronger commitment to keeping monetary policy restrictive.

Fed officials projected the federal funds rate could reach 3.8% by the end of the year, compared with the previous estimate of 3.4% in March. Following the decision, markets increased expectations for a possible 25-basis-point rate hike in December, pushing US Treasury yields higher and offering renewed support to the dollar.

Higher interest rates and rising bond yields remain a challenge for gold, as the non-yielding asset becomes less attractive compared with interest-bearing investments.

Market participants will now focus on upcoming US economic data, including the Philadelphia Fed Manufacturing Index and weekly Initial Jobless Claims. Comments from Federal Reserve officials may also influence expectations for future monetary policy and provide further direction for both the US dollar and gold prices.

Oil prices moved lower in early Thursday trading after the United States and Iran reached an interim agreement aimed at ending the conflict, reopening the Strait of Hormuz, and easing restrictions on Iranian oil exports. The potential return of Iranian crude supply reduced concerns over a major energy disruption and weighed on prices.

The decline extended losses after oil prices briefly recovered on Wednesday following comments from US President Donald Trump, who warned that military action could resume if Iran’s leadership failed to comply with the agreement.

According to market analysts, energy traders are increasingly pricing in the possibility of Iranian oil returning to global markets sooner than expected following the US-Iran memorandum of understanding. The agreement reportedly includes a 60-day negotiation period during which Iran would allow unrestricted passage through the Strait of Hormuz, one of the world’s most important oil transit routes. Full shipping capacity through the strait is expected to be restored within 30 days under the preliminary deal.

If the agreement is successfully implemented and the Strait of Hormuz fully reopens, the current supply shortage could shift into a potential surplus. The International Energy Agency (IEA) warned that global oil supply may exceed demand by around 5.05 million barrels per day in 2027 as Middle Eastern production returns to the market.

Additional pressure on crude prices came from growing expectations that the Federal Reserve may raise interest rates later this year to contain inflation. Higher borrowing costs could slow economic growth and reduce energy demand.

US stocks ended lower on Wednesday after the Federal Reserve kept interest rates unchanged as expected but signaled that a rate increase could still be possible later this year. Investors also evaluated new Fed Chair Kevin Warsh’s plans for broad reforms aimed at changing how the central bank conducts monetary policy.

Market sentiment had initially remained supported by optimism surrounding a potential US-Iran peace agreement. However, the Fed’s more hawkish outlook shifted investor focus toward higher interest rate risks.

A major focus of the Fed meeting was Chair Kevin Warsh’s vision for restructuring the central bank’s policy framework. Warsh announced the creation of task forces examining five key areas: Fed communications, balance sheet management, reliance on economic data, productivity and employment trends, and inflation policy.

The Fed also introduced a shorter policy statement that removed forward guidance and concluded with a stronger commitment to maintaining price stability.

Elsewhere in markets, SpaceX shares declined 5% on Wednesday as the company’s strong post-IPO rally lost momentum.

The company had surged following its market debut, briefly surpassing Amazon in valuation and approaching Microsoft’s market capitalization. After pricing its IPO at $135 per share and raising $75 billion, SpaceX gained nearly 50% within four trading sessions. The recent decline marks the first major pullback following one of the strongest market debuts in history.