The OIS curve repriced. From cuts to hike risk in five sessions.

DXY 101.37 · EUR/USD 1.1383 · US10Y 4.37%

The headline number from today's post-mortem was DXY at the 100 line. The more durable number is in the rates space. The implied year-end federal funds rate has moved from roughly 3.25 percent in mid-April, which is to say 50 basis points of cuts priced from the current 3.50-3.75 percent target, to roughly 3.88 percent today, which is to say a 60 percent probability of a 25 basis-point hike on top of the current target. That is a 60 basis-point swing in expected-rate space over six weeks, and roughly 25 basis points of it has come in the last five sessions alone. This is what a regime change in the rates market looks like.

The repricing, in one chart

What's actually priced now

Three distinct year-end paths the market could be pricing on the same 3.88 percent implied level. The differences matter:

• "Hold through 2026". 100 percent probability the FF target stays at 3.50-3.75; the 3.88 number is roughly the current midpoint plus the term premium contribution and a small expected-rate drift. This is the cleanest neutral read.
• "60% hike by year-end". 60 percent probability of a 25-basis-point hike at one of the three remaining 2026 meetings (June, July, September; the December meeting is too close to year-end for full pricing). This is the most-quoted reading.
• "Bimodal path with cuts dropped". Some participants priced 50 basis points of cuts, others 25 basis points of hikes; the market median lands at 3.88 percent because the cut-priced contingent has dropped out of the distribution. This is the read that fits the dispersion in the analyst pool.

The truth is some combination of the three. The clearest operational reading is that the OIS curve has fully repriced the easing the Committee was previously thought to be delivering, and is now starting to price the tail risk of a hike. That is the regime change. The level matters less than the direction of the move.

Decomposing the move

Through the ACM decomposition, the 60 basis-point swing in the OIS implied rate is roughly half expected-rate path and half term premium. The expected-rate piece is the part that responds directly to data; the term premium piece is the part that responds to issuance, foreign demand, and risk preferences. Both moved in the same direction over the last six weeks, which is unusual. Most cycles see them move in opposite directions on individual data prints, with one channel offsetting the other.

Today's 10-year yield at 4.37 percent decomposes roughly into 3.10 percent of expected-rate path plus 1.44 percent of term premium. The expected-rate piece is now meaningfully above where the OIS-implied path was through most of April. The term premium piece is back at its highest level since the post-2022 sample. Both are doing more work than they were doing two weeks ago.

What it means for FX

Through the dollar smile, the move from "cuts priced" to "hike risk priced" reinforces the right edge of the curve. The rate-differential pull on the dollar against G10 is now firmer than at any point in the cycle. EUR/USD at 1.1383 is consistent with that read; the historical fit on real-yield differentials says EUR/USD should sit around 1.155 at the current rates configuration, which is essentially where it is.

USD/JPY at 160 is the cross where the OIS repricing matters less than the policy-divergence framing. With BoJ still in a glacial normalisation and the OIS-priced FF path now materially higher, the carry is wider than at any point since 2024. That is the structural tailwind under the MoF intervention threat in the yen pair.

What's priced for the 16-17 June meeting

The meeting itself is now priced with zero probability of a cut and roughly a 10 percent probability of a 25 basis-point hike. The base case is hold. That places enormous weight on Warsh's framing in the press conference and on the SEP and dot plot, which we cover in today's companion reference piece.

Three scenarios for the meeting, with the OIS reaction:

1. Hold with a hawkish SEP (median dot moves up to 4.00 percent). The OIS-implied year-end rate pushes to 4.00 percent. DXY through 100 toward 100.5. The carry trade extends.
2. Hold with a neutral SEP (median holds 3.875 percent). OIS holds near current levels. The tape consolidates the post-NFP range. DXY range-bound around 99.5-100.
3. Hold with a dovish SEP and trimmed-mean framing. Warsh leans on the trimmed-mean PCE framing we covered to keep optionality for later cuts. OIS gives back 15 to 20 basis points. DXY back to 99 territory, EUR/USD bounces to 1.165.

What to watch into the meeting

• CPI on 11 June. The last major print before the meeting. Cleveland Fed nowcast is close to consensus into the print; the surprise is the variable. A hot CPI takes scenario 1 to base case; a soft one opens up scenario 3.
• The Citi CESI cross-section. The US-vs-G10 spread is now firmly positive. Any pull-back here is the cleanest tactical reset signal.
• Warsh's first scheduled remarks. Likely pre-meeting; the framing he brings is the most actionable item.
• The OIS-to-SEP gap. Currently narrow. Wider going in would mean the market disagrees with the Committee; narrower means agreement.