Last week’s FOMC meeting was highly unusual.
New Fed Chair Walsh, making his debut at this meeting, rejected forward guidance, and the statement contained only the bare minimum of facts.
Looking at the dot plot, nine board members supported rate hikes by year-end, with one favoring three hikes, five favoring two, and three favoring one.

At the press conference, he kept things simple, stating that the Fed’s job is to “achieve price stability” and focusing solely on that one point—even going so far as to declare, “Making predictions about the future is not our job.”
Overall, the tone was extremely hawkish; to put it bluntly, it seems they are prepared to raise rates as many times as necessary to achieve the 2% inflation target.
Many market participants were likely waiting with long dollar positions.

In the UK, Mayor Burnham of Manchester won a House of Commons by-election. He is likely to be seen as a leading candidate to succeed Prime Minister Starmer as the next prime minister.
While political turmoil in the UK tends to lead to selling of the pound, Mr. Burnham advocates relatively sound economic policies and has enlisted leading economists such as Jim O’Neill as advisors, so it is highly unlikely that his candidacy alone will trigger a sell-off of the pound.

However, Stuart Jenkins, a strategist at Goldman Sachs, pointed out in a client report that “the pound is overvalued relative to fundamentals, and Brexit has likely pushed the pound’s fair value down by about 6%.”
He added that, following a strong recovery in real terms, “the pound is the most overvalued of the G10 currencies.”
Since the Bank of England is relatively dovish, it seems likely that selling the pound against the dollar will become a favored trade among speculators going forward.

The Bank of Japan raised its policy rate by 0.25% today to 1.00%.
However, since the policy change was widely anticipated, it had virtually no impact on the market.

The next rate hike appears to be quite a ways off. Some market participants believe the Bank of Japan has run out of ways to halt the yen’s depreciation.
Given this, there appears to be considerable upside potential for the dollar-yen pair.

Furthermore, the Japanese stock market has begun to exhibit signs of a bubble.
While it is understandable that AI-related stocks are leading the rally, they are still far too expensive.
It seems many investors are looking for an exit.