Dollar rises after Fed signals rate hike in 2026New Chair Warsh does not submit a rate projectionBoE to stand pat; focus to fall on guidanceStocks slide on Fed outcome, but futures reboundFed Stand PAT, Dot Plot Signals HikesThe US dollar rose sharply against most of its major peers on Wednesday, though it is pulling somewhat back today.The big highlight yesterday was the first FOMC decision under Kevin Warsh’s leadership, which was interpreted as a hawkish hold. Although the new chief shortened the statement accompanying the decision, largely eliminated any guidance about the future path of interest rates, and refrained from submitting his own forecast to the new dot plot, nine policymakers favored at least one rate increase by the end of the year, with one member voting for three quarter-point increases, and five others expecting two.This prompted market participants to ramp up their rate hike bets, fully penciling in a 25bps rate hike by October and assigning a strong 80% chance that this may happen in September. Another quarter-point increase is nearly fully factored in for March.The outcome corroborated the view that inflation would remain a concern for the Fed even if there is increasing hope about a truce in the Middle East and potential reopening of the Strait of Hormuz. Indeed, policymakers revised their inflation projections significantly higher, with the headline PCE rate now seen at 3.6% by the end of the year, compared to the 2.7% forecast in June, and the core PCE rate taken up to 3.3% from 2.8%.Central Bank Torch Passed to BoEToday, the central bank torch will be passed to the BoE, which is also expected to stand pat. After the latest gathering Governor Bailey signaled that they are in no rush to press the hike button and that allowing inflation to run above its target is justified given the uncertainty about the impact of the Iran war on the economy.With the headline CPI rate holding steady at a 13-month low of 2.8% y/y in May, policymakers are unlikely to shift more hawkish, especially with hopes of truce in the Middle East rising after the US and Iran agreed on a memorandum of understanding which could lead to the reopening of the Strait of Hormuz.According to the UK Overnight Index Swaps (OIS) market, investors are expecting one quarter-point rate increase by the end of the year, but another no-rush rhetoric could push the hike timing back, thereby hurting the pound.Pound traders may also keep an eye in the by-election in Manchester. The election was triggered after Labor MP Simims resigned and attracted special attention as candidate Andy Burnham is seen as winning and challenging Keir Starmer’s for party leader and even prime minister.Markets Alert for Yen Intervention, Stocks Ready to BounceThe Japanese yen also traded on the back foot against the US dollar, with dollar/yen remaining above the round figure of 160.00, even after Japanese authorities reiterated that they are “ready to respond appropriately at any time”. This may keep traders on edge as intervention can happen at any time. However, with the BoJ’s hike this week failing to boost the yen, it is doubtful whether an intervention episode in the coming days could lead to a sustained recovery in the Japanese currency.On Wall Street, all three indices closed in the red, with the tech-heavy Nasdaq losing the most ground as expectations of higher interest rates by the Fed weighed on the present values of high-growth stocks.That said, stock futures are pointing to a strong bullish open today. It seems that, even though US President Trump signaled that the war with Iran could resume if he is not satisfied with the negotiations, investors maintained their optimism and took advantage of the more attractive levels following the Fed-related decline.