Dollar rallies broadly, yen turns lower after BOJ holds By Reuters

By Ray Wee

SINGAPORE (Reuters) – The dollar flirted with a two-year high on Thursday after the Federal Reserve signaled a slower pace of rate cuts in 2025, while the yen fell after the Bank of Japan (BOJ) kept rates on hold.

The BOJ kept interest rates unchanged earlier in the day, as expected, although a proposal by one board member to raise borrowing costs signaled the central bank is continuing to tighten policy early next year.

The yen fell more than 0.3% to a one-month low of 155.43 as a result of the decision, and was last trading 0.28% lower against the dollar for 155.24.

“No surprise here so far, but I guess yesterday’s FOMC result has put the BOJ in a corner where the BOJ can’t be too cocky to hold back the yen. At the same time, they really can’t either.” be. or a hawk,” said Naka Matsuzawa, chief strategist at Nomura Securities in Tokyo.

The BOJ would not want to exacerbate the current uncertainties in global markets as they did in July, he said, referring to an episode in which the BOJ’s hawkishness led to a yen-backed trade sell-off was the choice they had now.”

The focus now is on BOJ governor Kazuo Ueda’s press conference, expected at 0630 GMT, to reveal whether the bank may raise interest rates in January or March.

A more measured pace of Fed tapering next year will keep the US-Japan exchange rate differential under pressure for some time.

In the broader market, the fallout from Wednesday’s hawkish tilt by the Fed continued to ripple through markets, with currency moves particularly pronounced as traders largely shrugged off expectations for easing next year.

The rise in the US dollar sent peers including the Swiss franc, Canadian dollar and South Korean won to landmark lows in early Asian trade on Thursday.

“We think the decision marks the beginning of a long FOMC hiatus, even if it’s a little early to say for sure,” said Nick Rees, senior foreign exchange analyst at Monex Europe.

“We now expect US interest rates to remain on hold through at least the first half of 2025. If this is true, an upward adjustment in market expectations could support the dollar’s upside in the coming months.”

It cut a five-month low of 0.90215 to the dollar, while the Canadian dollar fell to a four-year low of 1.44655 to the US dollar.

The won fell to its weakest level in 15 years, while the Australian and New Zealand dollars similarly fell to more than two-year lows.

In sharp contrast, the 108.08 level has stabilized, near Thursday’s two-year high of 108.27.

Fed Chairman Jerome Powell said more cuts in borrowing costs now depended on further progress in reducing stubbornly high inflation, as his open and repeated references to the need for caution from now on sent global stocks lower and yields higher.

The Bank of England (BoE) will also announce its policy decision later on Thursday, where it is expected to keep interest rates on hold.

Sterling settled near a three-week low of $1.2584 ahead of the result, while the euro rose 0.28% to $1.0379, paring its sharp 1.34% decline in the previous session.

Down Under fell to $0.6199 before retreating slightly to end trade 0.07% higher at $0.62225.

The New Zealand dollar also hit its weakest level since October 2022 at $0.5608 and was last bought at $0.5628.

It was further weighed down on Thursday by data showing New Zealand’s economy slipped into recession in the third quarter, bolstering the case for more aggressive rate cuts.