Asian currencies weaken on US rate rise and high oil prices

Asian currencies experienced a mixed day on Thursday as the U.S. dollar reached a seven-week high following the Federal Reserve's first rate hike in three years. The Bank of Japan's decision on the yen's policy remained uncertain ahead of the announcement. The U.S. dollar index hovered around 100.30, unchanged after a 0.7% increase overnight.

The Fed unanimously decided to raise its policy rate by 25 basis points to 3.75%-4.00%, with officials projecting one more hike this year. The USD/JPY pair settled at 156.08, down 0.12%, nearing a two-week low after peaking last week. Other currency pairs, such as EUR/USD and GBP/USD, traded flat. The dollar's rise coincided with higher Treasury yields, with rate futures indicating a 90% chance of another 25-basis-point increase by year-end.

Fed Chair Kevin Warsh avoided giving specific interest-rate projections and opposed forward guidance. Analysts expect the dollar to remain within the 96-102 range established since mid-2025. The Bank of Japan is projected to raise its policy rate on Friday, targeting a 31-year high, in response to persistent inflation, including soaring oil prices.

The Bank of England's policy decision later on Thursday will be closely monitored for its impact on the British pound. China expanded its onshore central clearing system to more foreign currencies, aiming to promote direct yuan trading and reduce reliance on the dollar.