Hawkish Fed lifts dollar to seven-week high as focus turn to BOJ

The US dollar reached a seven-week peak on Thursday, following the Federal Reserve's decision to raise interest rates and signal more hikes. Investors are now eagerly awaiting the Bank of England's and Bank of Japan's decisions on Friday. On Thursday, Kevin Warsh, newly appointed Fed chief, played a key role in the dollar's surge, as he endorsed a hawkish stance and hinted at further rate hikes in 2026.

This unexpected guidance led investors to reprice policy rates higher, pushing the dollar even higher. The euro weakened to $1.1456, near a seven-week low, and the British pound remained flat at $1.3377, as traders focused on the Fed's actions. The yen slipped near a two-week low at 156.20 per dollar, awaiting the BoJ's decision.

The dollar index hit its strongest level since July 31, trading at 100.33. Meanwhile, oil prices continued to decline due to eased concerns over Middle East supply disruptions. The Australian dollar settled at $0.7096, while the New Zealand dollar remained unchanged at $0.5713. Rate futures markets now show a near 90% probability of an additional 0.25% Fed rate increase by year-end.

Now, the spotlight is on the Bank of Japan, which is anticipated to raise interest rates to a 31-year high on Friday, signaling its determination to continue hiking borrowing costs to combat inflation stemming from soaring oil prices. Analysts from OCBC are closely watching BOJ Governor Kazuo Ueda's comments for insights into the timing and pace of further rate increases, which could significantly impact the yen's future performance.

Japanese retail investors, however, remain cautious, holding onto short positions despite the yen's recent gains, anticipating a short-lived surge. In the cryptocurrency market, Bitcoin held steady at $76,562.25.