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

The dollar reached a seven-week high on Thursday as the Federal Reserve raised interest rates and signaled additional hikes in the future. Investors eagerly awaited decisions from the Bank of England and the Bank of Japan later in the week. New Fed chief Kevin Warsh, a unanimous vote for rate hikes, expressed greater hawkishness than anticipated, surprising the markets and prompting a reevaluation of policy and a subsequent dollar rally, according to currency strategist Carol Kong at Commonwealth Bank of Australia.

The euro weakened to near a seven-week low at US$1.1456, while the British pound remained flat at US$1.3377. The yen hovered near a two-week low at 156.20 per dollar ahead of the Bank of Japan's decision on Friday. The dollar index, measuring the greenback against a basket of currencies, reached 100.33, its highest level since July 31.

Rate futures markets now project a 90% chance of another quarter-percentage-point Fed rate hike by the end of the year. The Bank of Japan is next to watch, with a 31-year high interest rate hike expected on Friday, joining other central banks in addressing persistent inflation caused by soaring oil prices. Analysts at OCBC are closely monitoring Bank of Japan governor Kazuo Ueda's comments for potential hints on the timing and pace of further rate increases.

The yen surged to a seven-month high against the dollar last week due to growing conviction in the Bank of Japan's policy-tightening path, although Japanese retail investors remain cautious, anticipating a short-lived climb. Bitcoin remained flat at US$76,562.25.