Key facts
- The dollar reached a seven-week high on Thursday.
- The Federal Reserve raised interest rates and signaled more hikes.
- The dollar index traded at 100.33, its highest since July 31.
- The euro fell to $1.1456 against the dollar.
- The yen hovered near a two-week low against the dollar at 156.20.
- Markets anticipate the Bank of Japan will raise interest rates on Friday.
The dollar held near a seven-week high on Thursday, buoyed by the Federal Reserve's hawkish stance on interest rates. The Fed raised rates and indicated that further increases are likely in the coming months, prompting markets to reprice policy expectations higher. This move pushed the dollar index to 100.33, its strongest point since July 31.
Federal Reserve chief Kevin Warsh's guidance on future hikes surprised markets, contributing to the dollar's ascent. The euro dipped to $1.1456, nearing a seven-week low, while sterling remained steady at $1.3377 ahead of the Bank of England's policy meeting. The yen traded around 156.20 against the dollar, close to a two-week low, as investors anticipate the Bank of Japan's decision on Friday.
Rate futures indicate a roughly 90% probability of another quarter-percentage-point Fed rate hike by year-end. Attention now shifts to the Bank of Japan, which is widely expected to increase its interest rates to a 31-year high on Friday, signaling a continued fight against persistent inflation driven by rising oil costs. Analysts will be closely watching Governor Kazuo Ueda's remarks for clues on the pace of future policy normalization.