Dollar rises, yen falls after BOJ sticks to its course By Reuters
By Rae Wee
SINGAPORE (Reuters) – The dollar flirted with a two-year high on Thursday after the Federal Reserve signaled a slower pace of interest rate cuts in 2025, while the yen slipped after the Bank of Japan (BOJ) left interest rates unchanged.
The BOJ kept interest rates steady on Thursday as expected, underscoring policymakers’ preference to spend more time assessing whether wage increases will expand and keep inflation sustained around its 2% target.
The yen fell immediately after the decision, weakening against the dollar by about 0.3% to a one-month low of 155.28, before clawing back some of those losses.
The Japanese currency was last trading 0.15% lower at 155.04 per dollar.
“No surprise here so far, but I guess yesterday’s FOMC result has kind of put the BOJ in a corner where the BOJ can’t be too dovish to prevent the yen from crashing. At the same time, it actually can’t be.” “We are also restrictive,” said Naka Matsuzawa, chief strategist at Nomura Securities in Tokyo.
The BOJ does not want to exacerbate current uncertainties in global markets as it did in July, he said, referring to an episode in which the BOJ’s hawkish stance triggered a sell-off in yen-funded deals. “So postponing the right decision to raise this time was probably the only choice they had now.”
A more moderate pace of Fed rate cuts next year is likely to keep interest rate differentials between the U.S. and Japan wide for some time, putting pressure on the yen.
In the broader market, the impact of the Fed’s hawkish stance continued to impact all markets on Wednesday, with moves in currencies being particularly pronounced as traders sharply scaled back their easing expectations for next year.
The U.S. dollar’s rally sent its peers, including the Swiss franc, Canadian dollar and South Korean won, to milestone lows in early Asian trading on Thursday.
“We believe (the) decision marks the start of an extended pause from the FOMC, although it is a bit too early to say so explicitly,” said Nick Rees, senior foreign exchange market analyst at Monex Europe.
“We now expect US interest rates to remain unchanged at least through the first half of 2025. If true, an upward adjustment in market expectations should support the dollar uptrend in the coming months.”
The low point was a five-month low of 0.90215 per dollar, while the Canadian dollar fell to its lowest level in over four years at 1.44655 per U.S. dollar.
The won fell to its weakest level in 15 years, while the Australian and New Zealand dollars also fell to their lowest levels in more than two years.
In stark contrast, the reading stabilized at 108.05, near Thursday’s two-year high of 108.27.
Fed Chairman Jerome Powell said further cuts in borrowing costs now depended on further progress in reducing stubbornly high inflation, with his explicit – and repeated – references to the need for caution from now on also leading to a plunge in global inflation stocks and an increase in yields.
The Bank of England (BoE) will also announce its monetary policy decision later on Thursday, which is expected to see it stick to interest rates.
Ahead of the result, sterling remained near a three-week low at $1.25875. The euro, meanwhile, rose 0.23% to $1.0376, extending its sharp 1.34% decline in the previous session.
Down under, the price bottomed out at $0.6199 before recovering slightly to trade 0.11% higher at $0.6225.
The New Zealand dollar also hit its weakest level since October 2022 at $0.5608 and recently rose to $0.5623.
Pressure was further increased by data on Thursday that showed New Zealand’s economy slipped into recession in the third quarter, bolstering the case for more aggressive rate cuts.
