Key facts
- The dollar index reached its highest level in seven weeks.
- The Federal Reserve raised interest rates and signaled further increases.
- The euro fell to $1.1456 against the dollar, its lowest point in seven weeks.
- The Bank of Japan is expected to raise interest rates to a 31-year high on Friday.
- The Bank of Japan's policy rate would reach 1.25% if hiked as expected.
The US dollar climbed to a seven-week high after the Federal Reserve raised interest rates and signaled further increases to curb inflation. The Fed's move, led by chief Kevin Warsh, surprised markets and increased pressure on other central banks.
Meanwhile, the Bank of Japan is set to raise interest rates to a 31-year high on Friday and pledge to deliver more to counter inflation risks. This widely expected move would be the first hike in three months and take interest rates closer to levels the BOJ deems neutral to the economy, marking another step away from decades of ultra-low rates. The Federal Reserve's rate hike on Wednesday and prospects of another move later this year have piled pressure on the BOJ to keep pace, as a widening of an already big U.S.-Japan rate gap could weaken the yen and lift inflation through higher import costs, analysts say.
The euro briefly touched $1.1456, its lowest point in seven weeks, while the dollar/yen pair dropped 0.43% to 155.65. The Bank of England held rates steady but warned that prolonged conflict in the Middle East might necessitate tighter policy. The Reserve Bank of Australia has also hiked rates and signaled potential future increases.