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 and the yen fell after the Bank of Japan (BOJ) patted interest rates and offered some hints about its monetary prospects.
As expected, the BOJ left interest rates unchanged at the beginning of the day, which caused the yen to fall by as much as 0.3%.
The Japanese currency then extended losses to weaken above 156 per dollar for the first time in a month as BOJ Governor Kazuo Ueda addressed a post-meeting news conference that began at 06:30 GMT.
It was last trading almost 1% lower at 156.30 per dollar.
While investors had been watching for signs that the BOJ would tighten monetary policy imminently, especially after the Federal Reserve adopted a more hawkish tone in ending its policy just a day earlier, Ueda’s comments did not make investors any wiser.
The governor reiterated that policymakers will need more time to assess incoming economic data and the consequences of U.S. President-elect Donald Trump’s policies once he returns to the White House in January.
“The Fed’s hold and BOJ’s reluctance suggest that the dollar/yen may face further upward pressure,” said Christopher Wong, currency strategist at OCBC.
In the broader market, the effects of Wednesday’s hawkish Fed stance continued to reverberate across markets, with moves in currencies particularly pronounced as investors retreated sharply from expectations of monetary easing next year.
The rise in the U.S. dollar sent peers including the Swiss franc, Canadian dollar and South Korean won to key lows in Asian trade on Thursday.
“We think the decision marks the beginning of an extended pause in FOMC deliberations, even if it’s a little early to say so outright,” said Nick Rees, senior currency analyst at Monex Europe.
“We currently expect U.S. interest rates to remain unchanged until at least the first half of 2025. If this proves to be true, then an upward revision in market expectations should support the dollar’s rise in the coming months.”
The low hit a five-month low of 0.90215 per US dollar, while the Canadian dollar hit a more than four-year low at 1.44655 per US dollar.
The won fell to its weakest level in 15 years, while the Australian and New Zealand dollars similarly fell to their lowest levels in over two years.
In contrast, it held steady at 108.05, close to Thursday’s two-year high of 108.27.
Fed Chair Jerome Powell said further cuts in borrowing costs now depend on continued progress in reducing persistently high inflation, clearly and repeatedly alluding to the need for caution from here on in order to cause global stocks to fall and yields to rise.
On Thursday, the Bank of England (BoE) will also announce its policy decision, in which it is expected not to maintain interest rates.
Before the results were announced, sterling was trading near a three-week low of $1.26005. Meanwhile, the euro rose 0.42% to $1.03945, maintaining the edged 1.34% decline from the previous session.
Down Under hit a low of $0.6199 before recovering slightly to last trade 0.26% higher at $0.6234.
The New Zealand dollar also hit its weakest level since October 2022 at $0.5608 and last bought at $0.5639.
Stock market sentiment was further buoyed by Thursday’s data, which showed New Zealand’s economy slipped into recession in the third quarter, strengthening the case for more aggressive interest rate cuts.
