Forex Today: Japanese Yen falls despite BoJ's rate hike; Fedspeak in focus

On Friday, September 18, the Japanese Yen experienced a decline despite the Bank of Japan's (BoJ) rate hike. The US Dollar Index (DXY) saw modest gains around 100.30 as traders analyzed the Fed's recent rate increase. The Fed Governor Michelle Bowman's speech was expected to be released later on Friday.

Markets were pricing in a 53.1% chance of another US rate hike at the Fed's October meeting, up from nearly 44% the previous day, according to the CME FedWatch tool. The US Dollar was the strongest against the Japanese Yen.

Traders kept a close eye on developments in the Middle East, particularly the Iranian Revolutionary Guard Corps' statement that they controlled the Strait of Hormuz and would not allow any aggressors to pass through. US President Donald Trump hinted at a potential decision on resuming large-scale attacks on Iran.

The BoJ raised its policy rate by 25 basis points to 1.25%, the highest level since 1995. The decision was split 7-2, with two board members dissenting. The BoJ expressed concerns that underlying inflation might surpass its 2% target.

Analysts warned that Asia FX could face renewed pressure as markets repriced for further Fed hikes, potentially triggering portfolio outflows from the region and jeopardizing the year-to-date rebound in the Asia Dollar Index. The BoJ's hawkish tone, signaling a potential overshoot in inflation, supported the Yen's decline.

EUR/USD maintained a positive position near 1.1485 in the European morning, with the European Central Bank (ECB) having lifted its key deposit rate by 25 basis points to 2.50% the previous week. The ECB was expected to wait until December before delivering a final interest-rate increase to curb inflation stemming from the Middle East conflict.

The GBP/USD also strengthened above 1.3350, ending a four-day losing streak on Thursday. The Bank of England maintained the Bank Rate at 3.75% but signaled that a hike was becoming increasingly likely. Meanwhile, gold rebounded from a six-week low to above $4,350, driven by falling oil prices and easing US Treasury yields.