Written by Lei Wee
SINGAPORE (Reuters) – The dollar hit a two-year high on Thursday after the U.S. Federal Reserve signaled a slower pace of interest rate cuts in 2025, while the yen weakened ahead of the Bank of Japan's policy decision. It fell to its lowest price in a month. (Bank of Japan) later that day.
Fed Chairman Powell and his team's hawkish turn has traders significantly lowering their expectations for next year's easing, triggering a broad-based dollar rally and weakening currencies such as the Swiss franc, Canadian dollar and South Korean won. has fallen to a milestone low. Early trading in Asia on Thursday.
“It's a little too early to say for sure, but we think this decision signals the beginning of a long hiatus from the FOMC,” said Nick Rees, senior currency market analyst at Monex Europe.
“We now expect US interest rates to remain on hold until at least the first half of 2025. If correct, the upward adjustment in market expectations should support dollar upside in the coming months.”
The Swiss dollar hit a five-month low of $1, at $0.90215, and the Canadian dollar fell to a four-year low of $1.44655.
The won has fallen to its lowest level in 15 years.
In stark contrast, the dollar index stabilized at 108.15, near Thursday's two-year high of 108.27.
Further reductions in borrowing costs now depend on further containment of persistently high inflation, Powell said Wednesday, clearly and repeatedly mentioning the need for vigilance ahead of the challenges that will shake up markets globally. He said there was.
With the Fed's last policy meeting of the year over, the focus now shifts to the Bank of Japan and Bank of England (BoE) meeting, which concludes later on Thursday, with both expected to hold interest rates steady.
Ahead of this result, the yen fell to a one-month low of 154.88 yen to the dollar, widening its 0.84% decline in the previous session.
As the Federal Reserve begins lowering interest rates at a more cautious pace next year, the difference in interest rates between Japan and the United States is expected to widen for some time to come, putting pressure on the yen.
“We expect the Bank of Japan to be patient at its December meeting, not because it can afford to pause and evaluate, but rather because it cannot afford to raise rates prematurely at this juncture,” said former head of Asia macro research. Vishnu Varasan said. Mizuho Bank Japan.
“Despite subdued inflation, household confidence remains fragile. Importantly, rate hikes ahead of Trump 2.0 tariffs could amplify potential demand shocks.”
Meanwhile, the euro rose 0.18% to $1.0370, maintaining its 1.34% decline in the previous session. The pound was fixed at a three-week low of $1.25,775.
