Asia open: Wall Street slumps as Kevin Warsh delivers hawkish hold, GBP/USD’s plunge hits support ahead of BoE

• The Federal Reserve delivered a hawkish hold and signalled a major policy regime shift. While rates remained unchanged at 3.50%-3.75%, Chair Kevin Warsh abolished traditional forward guidance, reinforcing a data-dependent approach and increasing the likelihood of higher market volatility.
• Higher-for-longer interest rate expectations pressured risk assets. The S&P 500 fell 1.2%, the Nasdaq 100 dropped 1%, Treasury yields rose, and the US dollar strengthened as investors repriced the probability of another Fed rate hike before the end of 2026.
• Markets remain caught between easing geopolitical risks and restrictive monetary policy. While the official US-Iran interim peace agreement supported equity futures and pushed oil prices lower, the Fed’s hawkish stance continues to weigh on equity valuations, gold, and other rate-sensitive assets.
• Chart of the day: GBP/USD’s intraday plunge overextended, watch 1.3280/3262 key short-term pivotal support for a potential relief corrective rebound.

Wednesday’s 1% plunge in GBP/USD was the worst single-day performance in nine months, reinforced by the Fed’s hawkish hold on monetary policy.

Interestingly, yesterday’s drop has now stalled right after a retest of the medium-term ascending trendline for GBP/USD, in place since the 4 November 2025 low, ahead of the BoE’s monetary policy decision out later today at 7.00 p.m SGT (see Fig. 1).

The hourly RSI momentum indicator has just exited its oversold region after hitting an extreme level of 15.8 ex-post the FOMC, suggesting a potential minor relief-bounce for GBP/USD at this juncture.

Watch the 1.3280/3262 key short-term pivotal support, and a clearance above the 1.3325 near-term resistance reinforces the minor corrective rebound scenario towards the next intermediate resistances at 1.3360 and 1.3385.

However, a break with an hourly close below 1.3262 invalidates the relief bounce to continue the bearish impulsive down move sequence to expose the next intermediate supports at 1.3237 and 1.3210 on an intraday basis.

• Fed holds rates steady, but policy shocks markets with hawkish shift: The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate at its target range of 3.50% to 3.75%. However, the central bank’s updated economic projections delivered a hawkish surprise: 9 out of 19 officials now anticipate at least one interest rate increase before the end of 2026, forcing markets to aggressively price out near-term easing cycles.
• Chair Kevin Warsh triggers Fed "regime change” by killing forward guidance: In his highly anticipated debut press conference, newly appointed Fed Chair Kevin Warsh structurally overhauled the central bank’s communications playbook. Warsh delivered a drastically shortened committee statement and explicitly abolished traditional forward guidance, stating that financial markets operate best when reacting directly to real economic data rather than central bank hints. He also launched five new internal task forces to review the Fed’s balance sheet, communication framework, and inflation models.
• Wall Street slumps 1% as higher-for-longer projections rattle tech: U.S. stock benchmarks plunged in the closing minutes of the regular session as investors digested the shifting interest-rate dot plot. The S&P 500 slid 1.2%, alongside a 1% fall in the Nasdaq 100, completely wiping out early-session cyclical gains as rate-sensitive megacaps faced intense liquidation pressure.
• IEA warns of historic oil inventory depletion despite reopening framework: In its monthly global energy report, the International Energy Agency (IEA) warned that global oil inventories could hit historic lows over the coming months. Although Bloomberg published a 14-point memorandum detailing a U.S.-Iran agreement to restore toll-free commercial shipping through the Strait of Hormuz within 30 days, the IEA emphasised that physical export normalisation will remain highly gradual due to steep operational bottlenecks.
• Trump expresses full confidence in Warsh’s rate stance: President Donald Trump reacted mildly to the Fed’s hawkish hold, telling reporters, "It’s all right, whatever”. When questioned on the growing likelihood of an additional rate hike later this year, Trump acknowledged it “could happen” but reiterated his complete confidence in the new Chair, stating he is guided by what Warsh wants to do.

• The eradication of forward guidance and return to data dependency: Chair Kevin Warsh has officially initiated a monumental regime change in the Federal Reserve’s relationship with public capital markets. By removing forward-looking linguistic roadmaps from the policy statement, the central bank has effectively blindfolded traders who rely on pre-commitment signals. Warsh’s philosophy shifts the burden of price discovery entirely back to incoming economic data. While this may minimise the Fed’s vulnerability to blind feedback loops, it introduces a structurally higher baseline of volatility across global bond and equity horizons.
• The friction between paper accords and physical energy reality: The crude complex is navigating a stark disconnect between geopolitical diplomatic announcements and structural supply limits. Front-month futures contracts have been aggressively extracting the war premium on the back of the newly published 14-point U.S.-Iran memorandum. However, as the IEA explicitly highlighted, a political agreement cannot instantly clear physical distribution channels. Demining delays, insurance recalibrations, and logistical constraints mean that global structural inventory depletion will worsen before an anticipated supply surplus materialises next year.
• Valuation compression hits richly priced public equities: The upward shift in the Fed’s median dot plot—with half of the committee now signalling that a rate hike may be required before the year concludes, has forced an abrupt recalculation of equity risk premiums. Growth and technology names, which had brushed off sticky inflation metrics under the assumption of an impending autumn easing cycle, are highly vulnerable to this "higher-for-longer" baseline adjustment. With the cost of capital remaining structurally locked at multi-decade highs, equity multiples are under organic pressure.

Equities: The S&P 500 slumped 1.2% to settle at 7,420, while the tech-heavy Nasdaq 100 dropped 1%. The Dow Jones Industrial Average suffered a 507-point drop (1.0%) to finish at 51,498, reversing an intraday gain of 0.5% recorded earlier in the morning session. Small caps shared the pain, with the Russell 2000 closing down 0.7%.

In today’s Asia opening session, the E-mini futures of the S&P 500 and Nasdaq 100 recovered by 0.8% and 1.4% reinforced by the official signing of the US-Iran interim peace deal by US President Trump.

Fixed Income: Sovereign bonds faced steep selling pressure as rate-cut bets were unwound. US Treasury yields climbed across the curve, pushing long-duration yields higher. Driven by the hawkish shifts, the benchmark U.S. 30-year fixed mortgage rate jumped to an estimated 6.62%, up from 6.54% the prior day.

FX: The U.S. Dollar Index caught an aggressive safe-haven bid in late New York trading following Warsh’s remarks. The euro and British pound gave up intraday gains and traded under pressure, dropping by 0.9% and 1% by the close of Wednesday’s session. The Japanese yen edged lower, remaining highly sensitive to widening yield spreads and trading near the recent intervention threshold of 160.65.

Commodities: Front-month international energy contracts inched lower in line with the broader risk-off equity slide, with Brent crude futures sliding 0.9% to near $78.66/bbl despite the IEA’s warning about inventory depletion. Spot gold fell 1.7% to settle near $4,258/oz after a bearish reaction below the 20-day moving average as surging nominal yields diminished the appeal of non-yielding safe havens.

• Mixed performances: The current bounce seen in the E-mini futures of the S&P 500 and Nasdaq 100 have managed to negate the overnight weakness inflicted on US stock indices. Japan’s Nikkei 225 surged by 2% to another intraday record high of 71, 330. Also, another fresh high was seen on South Korea’s KOSPI (+1.7%). In contrast, Hong Kong’s Hang Seng Index and Australia’s ASX 200 underperformed, posting intraday losses of 1.7% and 0.6%.
• Yen remains locked near key intervention floor: The Japanese yen continues to hug the critical 160.65 level per US dollar. With the Federal Reserve signalling a sustained restrictive policy stance, wide interest-rate differentials continue to favour the greenback, keeping the Bank of Japan on high alert for spot-market smoothing operations.
• Regional importers absorb elevated near-term energy costs: Despite long-term optimism about the upcoming reopening of the Strait of Hormuz, Asian refiners are continuing to draw down costly near-term stockpiles. The IEA’s confirmation of multi-month transit bottlenecks ensures input energy constraints will linger for non-OPEC APAC economies through the summer.

1. BoE Interest Rate Decision - 7.00 PM SGT (consensus: on hold at 3.75%) Impact: GBP/USD, GBP crosses, FTSE 100, UK Gilts
2. US Weekly Initial Jobless Claims - 8.30 PM SGT Impact: USD, US stock indices, short-end US Treasuries
3. US Conference Board Leading Index (May) - 10:00 PM SGT (consensus: 0.1% m/m, Apr: 0.1% m/m) Impact: US stock indices, USD