FX markets briefly moved to price in a less hawkish Federal Reserve narrative yesterday, before quickly reversing course. Kevin Warsh’s appearance at Sintra disappointed those looking for a clear policy signal, with much of the discussion focused instead on the limitations of forward guidance.

US front-end yields initially fell by around 5 to 6 basis points and the dollar softened, but both moves were later retraced. The market’s eventual interpretation was that Warsh was comfortable allowing incoming data to shape rate expectations, rather than guiding investors outside formal Fed meetings.

FX markets are trading with a firmer risk tone, although price action remains shaped by a familiar mix of resilient US data, shifting rate expectations and political uncertainty. The dollar is holding a broadly stronger bias, but risk-sensitive currencies have also found support as stronger US activity data helped lift equity markets and improve wider sentiment.

The Chicago PMI rose to 56.7, ahead of the 55.7 expected, signalling a firmer pace of expansion. Job openings also surprised to the upside, with the JOLTS report printing at 7.59 million. That has raised the stakes ahead of Thursday’s earlier-than-usual non-farm payrolls release, although tonight’s ADP employment report will be watched closely for a clearer steer.

The dollar has softened against most G10 peers as firmer equity markets restore some confidence across risk assets. Sentiment has also been helped by reports that the US and Iran are set to resume negotiations, despite tensions over the weekend. The pullback in oil, however, has weighed on commodity-linked currencies such as the Australian dollar, Canadian dollar and Norwegian krone, while the yen remains under pressure.

We continue to view the oil move as stretched and see scope for selected high-carry currencies, particularly AUD and NOK, to perform better over the summer should energy prices stabilise at moderately higher levels.

FX markets enter the final sessions of June with a more cautious tone, as the dollar’s retreat from one-year highs has done little to restore broader confidence. Risk-sensitive currencies remain vulnerable, while lower energy prices and shifting rate expectations are starting to reshape the near-term outlook across G10.

US equities are lower by around 3% to 6%, but the sharper move has been in mega-cap technology. Alphabet is down 20%, Apple 10%, Amazon 16% and Meta 30%, highlighting how pressure in a handful of crowded names is now driving the broader risk tone.

Risk appetite has turned more fragile as investors take profits in some of this year’s most crowded equity trades. Pressure on Apple, alongside reports of a potential delay to OpenAI’s IPO, has cooled enthusiasm around the AI-led rally and prompted a broader reassessment of market leadership.

Asia has borne the brunt of the move, with the MSCI Asia Pacific Index down around 3% and Korea’s Kospi briefly halted after a sharp intraday fall. European shares and US futures are also trading softer, pointing to a more cautious start across global markets.

The dollar has broken higher with conviction, helped by a powerful mix of technical buying, defensive flows and renewed confidence in the US macro story. While the move looks bigger than the shift in Fed pricing alone would suggest, the broader market backdrop has turned decisively more supportive.

Rate markets have not fully matched the scale of the dollar rally. US 2-year OIS has fallen by around 7bps since Monday, while expected hikes by year-end have eased from 42bps to roughly 35bps. That makes this less of a simple rates story and more of a broader repositioning move.

FX markets are starting the session with a clear dollar bias, as higher US yields, softer risk appetite and renewed policy divergence push the greenback to the front of the pack. The move has left EUR/USD under fresh pressure below 1.14, dragged GBP/USD beneath 1.32 and helped GBP/EUR break through the heavily watched 1.16 area, with investors favouring the dollar as both a yield and defensive play.

The move has been building since the Fed’s June meeting, where rates were held at 3.50% to 3.75% and the previous easing bias was effectively removed. Markets have since shifted towards a higher-for-longer US rates narrative, with the dollar emerging as the cleanest expression of that repricing.

FX markets open with sterling in the spotlight, as investors look past UK political drama and instead focus on the prospect of a swift, orderly leadership transition. The pound has rallied across the board, supported by lower gilt yields and a reduced near-term political risk premium.

The wider market tone remains more cautious. Global equities are under pressure, the Fed continues to lean hawkish, and the dollar is still benefiting from resilient US data and sticky inflation risks. In Europe, softer ECB messaging has left the euro vulnerable, with EUR/USD edging closer to a potential test of 1.14.