The Bank of England (BoE) announced today, Thursday, June 18, 2026, that it had left UK interest rates unchanged at 3.75%, in line with expectations.

Markets, however, remain focused on the US Federal Reserve, in the aftermath of the first meeting chaired by new Fed Chair Kevin Warsh, who delivered what analysts and markets alike read as a decisively hawkish turn in US monetary policy.

It is no coincidence that the standout story in the foreign exchange market is the dollar’s surge against the other major currencies. Investors are betting on a Fed ready to raise US rates in response to surging domestic inflation.

Inflation is, in fact, accelerating almost everywhere, driven by the effects of the energy shock unleashed by the US-Iran war.

As for the Bank of England, in the statement accompanying its decision to hold rates at 3.75%, the central bank reiterated that its Monetary Policy Committee (MPC) stands ready to act if needed to ensure that CPI inflation returns to its 2% target over the medium term.

The BoE noted that «the outlook for energy prices remains uncertain» and that the United Kingdom’s labor market continues to cool. More broadly, the central bank added, signs of a weakening economy could help to contain inflationary pressures.

The decision to keep UK rates on hold was not unanimous: it passed by 7 votes to 2, with policymakers Huw Pill and Megan Greene dissenting in favor of a hike to 4%, citing a UK inflation rate that continues to overshoot the institution’s 2% target.

Today’s meeting also revealed that the Bank of England has revised its inflation forecasts lower. It now expects a rate slightly below 3% in the third quarter of 2026, before climbing «a little above 3.25% in the fourth quarter.» Back in April, its estimates had penciled in a CPI increase of 3.3% in the third quarter and «a further rise in the fourth quarter.»

The downward revision to the inflation outlook does not, however, dispel fears that UK rates could still be raised, with inflation expected to run at levels well above the BoE’s 2% target.

Dollar buying after the Fed meeting: Dollar Index hits highest since May 2025

Meanwhile, markets are still trying to digest the many developments to emerge from the Fed’s first meeting under Kevin Warsh. The standout move has been the jump in the US dollar, which is pricing in the more hawkish view from the dot plot (the chart summarizing each policymaker’s rate projections) and the message coming through from markets.

Money markets are now betting on US tightening of 40 basis points by year-end, pricing the probability of a July rate hike at 36% and a September move at 72%. A rate increase at the October FOMC meeting is considered all but certain.

That speculation has supercharged the dollar, which rose to its highest in more than two months against both the euro and the pound. The euro-dollar rate (EUR/USD) slipped to $1.146 and sterling-dollar (GBP/USD) fell to $1.322. The focus is on the Dollar Index, which jumped as high as 100.71, its strongest level since May 2025, after a 0.85% gain on Fed Day that marked the index’s biggest single-day move in more than three months. Sterling, for its part, remained under pressure following the Bank of England’s rate announcement, losing more than half a percentage point against the dollar.

Editor’s note

This article was originally published in Italian on money.it by Laura Naka Antonelli on June 18, 2026 as «Bank of England lascia tassi UK invariati al 3,75%. Il focus rimane sulla Fed, occhio al dollaro». It has been translated and adapted for an international audience by the Money.it International desk.