The Bank of England (BoE) announced today, Thursday, June 18, 2026, that it had left UK rates unchanged at 3.75%, in line with expectations.
Yet the market’s attention remains fixed on the US Federal Reserve, in the wake of the first meeting chaired by new Chair Kevin Warsh, who — according to both analysts and markets — gave US monetary policy a decidedly hawkish turn.
It is no coincidence that the standout move in the foreign-exchange market is the dollar’s rally against the other major currencies.
Markets are now betting on a Fed ready to raise US rates in response to runaway inflation in the United States.
Inflation, however, is running hot more or less everywhere, due to the fallout from the energy shock triggered by the US–Iran war.
As for the Bank of England, in the statement announcing its decision to hold rates at 3.75%, the central bank reiterated that its Monetary Policy Committee (MPC) stands ready to act if necessary 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 UK labor market continues to cool. More broadly, the central bank added, signs of a weakening economy could help contain inflationary pressures.
The decision to keep UK rates on hold was not unanimous: it passed by 7 votes to 2. The two dissenters, Huw Pill and Megan Greene, would have preferred a hike to 4%, citing the trajectory of UK inflation, which continues to overshoot the institution’s 2% target.
At the same time, today’s meeting revealed that the Bank of England has revised its inflation forecasts lower. The outlook is now for a rate slightly below 3% in the third quarter of 2026, expected to “climb a little above 3.25% in the fourth quarter.”
In April, the estimates had penciled in a CPI reading — and therefore an inflation rate — of 3.3% in the third quarter, with “a further increase in the fourth quarter.”
The downward revision to the inflation projections does not, however, dispel the fear that UK rates could still be raised, with inflation expected to run at levels well above the BoE’s 2% target.
Dollar bought 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, who confirmed US rates at 3.5%–3.75% before unveiling his own shake-up of the central bank. The most visible effect has been the surge in the US dollar, which is pricing in the more hawkish view that emerged from the dot plot, as well as the message the markets are sending.
Money markets are now betting on US monetary tightening of 40 basis points by year-end, putting the probability of a July hike at 36% and a September hike at 72%. A tightening move at the October FOMC meeting is considered all but certain.
That speculation has supercharged the dollar, which has climbed to a more-than-two-month high against both the euro and the pound, with the EUR/USD exchange rate falling to $1.146 and GBP/USD 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 the day of the Fed decision, the index’s sharpest one-day move in more than three months. The pound, for its part, remains under pressure after the Bank of England’s rate announcement, shedding 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 «Tassi UK, Bank of England lascia tassi invariati al 3,75%. Focus ancora sulla Fed e sul dollaro». It has been translated and adapted for an international audience by the Money.it International desk.
