On Thursday, the U.S. dollar neared a two-year high after the Federal Reserve indicated slower rate cuts in 2025. Meanwhile, the yen fell after the Bank of Japan (BOJ) kept interest rates unchanged and offered little guidance on future monetary policy.
The BOJ’s decision, as expected, caused the yen to drop by 0.3%. It then weakened further, falling below 156 per dollar for the first time in a month after BOJ Governor Kazuo Ueda’s comments during a press conference. The yen was last down nearly 1% at 156.30 per dollar.
Investors had hoped for signs of BOJ tightening, especially after the Federal Reserve’s more hawkish stance the previous day, but Ueda’s remarks offered no clear direction. He reaffirmed that more time was needed to assess economic data and the potential impact of U.S. President-elect Donald Trump’s policies when he returns to office in January.
An economist noted that the Fed’s cautious stance and the BOJ’s inaction suggest the dollar/yen pair could face more upward pressure.
In the wider market, the Fed’s hawkish tone continued to influence currency movements, with traders reducing expectations for rate cuts next year. The dollar’s strength caused the Swiss franc, Canadian dollar, and South Korean won to hit new lows in early Thursday trading.
Forex analysts, stated that the Fed’s decision likely signals a long pause in rate changes, with U.S. rates expected to remain stable through mid-2025. If this is correct, market expectations may shift, supporting the dollar.
The U.S. dollar index held steady at 108.05, close to its two-year high of 108.27.
Fed Chair Jerome Powell stated that further rate cuts depend on continued progress in reducing inflation, with his cautious remarks sending global stocks down and yields up.
