What do the charts show?
The chart illustrates how market expectations for future US Federal Reserve policy rates have evolved so far this year, based on the overnight index swap (OIS) curve.
Since the onset of the Iran conflict, markets have adopted a steadily more hawkish stance on rates. Expectations have shifted to the point where investors are now even pricing in potential rate hikes – despite the appointment of a new Fed Chair, Kevin Warsh, who Trump appointed after criticising the previous chair for not cutting rates aggressively.
This shift was reinforced by Wednesday’s Federal Reserve meeting. Somewhat unexpectedly, half of the 18 officials submitting projections indicated that they anticipate rate hikes by year-end, prompting a further increase in market-implied policy rates.
Stronger-than-expected US labour market data for May has also contributed to this shift, reducing the urgency for rate cuts. With greater resilience in employment, the Fed has more room to prioritise its inflation mandate.
At the same time, the effects of the closure of the Strait of Hormuz is has started to feed through into global supply chains, raising the likelihood of sustained inflationary pressures. In this context, tighter monetary policy may be required to contain price increases.
Overall, markets are now pricing in nearly 40 basis points of rate hikes, a sharp reversal from the roughly 60 basis points of cuts expected at the start of the year.
Why this is important
Higher interest rates have a direct impact on corporate behaviour - discouraging borrowing, slowing investment and potentially weighing on earnings growth. For investors, this shifts the focus from expansion-driven returns toward profitability and resilience, which could prove problematic for a country dominated by mega-cap growth stocks with nerve-testing valuations.
At the same time, higher yields on fixed income instruments offer better alternatives. Bonds and other income-generating assets begin to offer more attractive risk-adjusted returns, creating genuine competition for equities. This can lead to a repricing across asset classes, as investors no longer feel compelled to chase risk in search of yield.
Currency dynamics add another layer. A relatively hawkish US rate outlook can support the dollar by attracting global capital seeking higher returns. While this strengthens purchasing power domestically, it can create headwinds for multinational companies and reduce the value of overseas earnings when translated back into dollars.
Ultimately, rising rate expectations force investors to think more carefully about balancing allocations across asset classes and regions. It’s clear that the path ahead is getting steeper and investors may need to brace for a tougher climb.
The dominant global market driver was the sharp reversal in energy prices following Middle East de-escalation, improving risk sentiment while leaving long-term geopolitical uncertainty unresolved.
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Federal Reserve holds interest rates steady, with policymakers citing persistent inflation but expecting easing energy prices after the US–Iran memorandum of understanding to reduce future inflation pressures.
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Wall Street reached record highs following the US–Iran agreement, as oil prices fell sharply and investors rotated back into equities.
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The G7 Summit in France focused heavily on trade, AI, critical minerals and coordinated responses to China's industrial policies alongside Middle East security.
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US foreign policy remained dominated by the Middle East, with negotiations over the Strait of Hormuz reducing immediate market fears but leaving geopolitical uncertainty elevated.
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Sir Keir Starmer announced his resignation as Prime Minister and leader of Labour Party today, 22 June 2026.
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The Bank of England kept interest rates unchanged, maintaining a cautious stance while monitoring inflation and energy prices.
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UK GDP data continued to show weak growth, reinforcing expectations that monetary policy will remain restrictive for longer.
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Brexit returned to the political debate ahead of the referendum's tenth anniversary, with renewed discussion over rebuilding EU economic ties rather than rejoining outright.
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The European Central Bank raised interest rates in response to renewed inflation pressures linked to higher energy costs.
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European equity markets rallied strongly, benefiting from lower oil prices following progress on the US–Iran agreement.
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EU leaders met to discuss Ukraine, defence, fiscal priorities and the next long-term EU budget, alongside trade and competitiveness.
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The G7 reinforced cooperation on industrial policy, AI and critical supply chains, with Europe seeking greater coordination among allies.
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The US–Iran memorandum of understanding dominated global markets, leading to a sharp fall in oil prices and improved investor confidence.
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Ukraine launched one of its largest drone attacks on Moscow since the war began, striking the Moscow Oil Refinery twice during the week and forcing a temporary halt to operations. The refinery supplies around 40% of Moscow's petrol and roughly half of its diesel, making it one of Ukraine's most strategically important attacks on Russia's domestic energy infrastructure.
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China remained a central topic at the G7, with Western leaders discussing coordinated responses to Chinese industrial policy and strategic trade issues.
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The Bank of Japan's policy meeting attracted global attention, with investors assessing the possibility of further policy normalisation.
