Hormuz Reopening Meets Hawkish Fed: Macro Crosscurrents

The Bank of Japan raised its policy rate by 25 basis points to 1.0 percent, the highest since 1995. The vote split was 7-1. The BoJ signalled further rate hikes and outlined a gradual reduction in JGB purchases, effectively pausing quantitative tightening from 2027. Markets had already priced in the move. USD/JPY held above 160. The absence of a bigger drop in the pair suggests the dollar's yield advantage remains the dominant force, even after the BoJ's most aggressive step in three decades.

The Bank of England kept its Bank Rate at 3.75 percent on a 7-2 vote. The two dissenters were Chief Economist Pill and newly hawkish member Greene, who voted for a hike to "insure against the possibility of larger second-round effects." Markets now price in a full hike by year-end. Sterling is caught between a strong dollar and a domestic inflation problem that the BoE sees as persistent. GBP/USD traded near 1.2200, near the bottom of its recent range.

Data from the three largest economies reinforced the divergence story. US retail sales rose for the fourth straight month, beating expectations. Households stepped up car purchases despite higher petrol prices. In the euro area, the final May inflation print confirmed that services inflation ran at 3.6 percent year-on-year. The breakdown showed the strength was broad-based, not a one-off or seasonal quirk. That keeps pressure on the ECB to hold rates at elevated levels. In China, retail sales fell 0.6 percent year-on-year in May. Property investment slumped further. New home prices continued to decline, even as industrial production accelerated to 4.5 percent year-on-year on strong exports. The two-speed economy creates a drag on global demand that partly offsets the oil supply boost.

For traders, the Hormuz reopening removes a layer of geopolitical risk that had been supporting oil and weighing on import-dependent currencies. The Fed's hawkish stance adds a dollar tailwind. The BoJ's hike changes the carry trade calculus only marginally. The next week of data will test whether the repricing has run its course.

Next week brings the June flash PMIs for the US, euro area, and UK. The US PCE inflation print for May and the euro area consumer confidence survey are also due. The ECB releases its consumer expectations survey.