The US dollar climbed to a seven-week high on Thursday after the Federal Reserve raised interest rates and signalled another hike could come before the end of the year, with markets now turning their attention to the Bank of Japan.
The dollar strengthened alongside US Treasury yields after Fed Chair Kevin Warsh joined a unanimous decision to raise rates, while policymakers’ projections pointed to another increase in 2026.
“(Warsh) definitely sounded more hawkish than expected, and the fact that he provided guidance on future hikes surprised the markets, causing them to reprice policy higher, which ultimately pushed the dollar higher,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
“Our outlook is for the dollar to appreciate because of our view on the FOMC.”
The dollar index, which tracks the greenback against a basket of major currencies, rose to 100.33, its highest level since July 31.
The euro fell to US$1.1456, near a seven-week low, while sterling was little changed at US$1.3377 ahead of the Bank of England’s policy decision later on Thursday.
The yen traded at 156.20 per US dollar, close to a two-week low, as investors awaited the BOJ’s decision on Friday.
Rate futures now show around a 90% probability of another 25-basis-point Fed rate hike by the end of the year, according to CME Group’s FedWatch Tool.
BOJ Takes Centre Stage
Markets now expect the Bank of Japan to raise interest rates to their highest level in 31 years on Friday and signal that further increases could follow as it continues to tackle persistent inflation pressures, including those stemming from higher oil prices.
Investors will also watch for guidance from BOJ Governor Kazuo Ueda on the timing and pace of future rate increases.
“The bigger question is how Governor Ueda frames the path beyond September, particularly whether the BoJ signals a faster pace of normalisation amid still-elevated inflation,” OCBC analysts said in a note.
The BOJ decision could prove particularly important for the yen, which climbed to a seven-month high against the dollar last week as investors increased bets on a faster pace of Japanese monetary tightening.
Speculative positions have since shifted to net-long yen bets, although Japanese retail investors have continued to hold short positions on expectations that the currency’s recent gains could prove temporary.
Elsewhere, the Australian dollar traded at US$0.7096 while the New Zealand dollar was little changed at US$0.5713.
Bitcoin was also little changed at US$76,562.25.
Reuters
