By Ray Wee
SINGAPORE (Reuters) – The dollar approached a two-year high on Thursday after the Federal Reserve (US central bank) signaled a slowdown in the pace of interest rate cuts in 2025, while the yen fell to its lowest level in a month ahead of the Bank of Japan's monetary policy decision. (BoJ) later today.
The hawkish tilt from Federal Reserve Chairman Jerome Powell and his team to see traders return dramatically tempered expectations for next year, which in turn led to a broad dollar rally, sending currencies like the Swiss franc, Canadian dollar and South Korean won to their lowest levels in the year. 2019. Early Asian trading on Thursday.
“We believe the decision marks the beginning of a long pause by the FOMC, even if it is too early to say so outright,” said Nick Rees, senior foreign exchange market analyst at Monex Europe.
“We now expect US interest rates to remain steady, at least until the first half of 2025. If so, an upward adjustment in market expectations should support a rise in the dollar over the coming months.”
The Canadian dollar reached its lowest level in five months at 0.90215 to the dollar, while the Canadian dollar fell to its lowest level in more than four years at 1.44655 to the US dollar.
The won fell to its lowest level in 15 years.
In stark contrast, the index settled at 108.15, close to its two-year high reached on Thursday at 108.27.
Powell said on Wednesday that further reductions in borrowing costs now hinge on further progress in reducing stubbornly high inflation, with his frank and repeated signals of the need for caution going forward in global markets.
With the Fed's final meeting of the year over, the focus now turns to the Bank of Japan and Bank of England meeting that will conclude later on Thursday, with both expected to remain steady on interest rates.
The yen fell to its lowest level in one month at 154.88 to the dollar before the results were announced, continuing its decline of 0.84% in the previous session.
The pace of the Fed's cuts next year is expected to keep US-Japan interest rate differentials wide for some time to come and the yen under pressure.
“We expect that the Bank of Japan will not change at the December meeting. Not because it can stop and take stock. It is because it cannot afford to raise interest rates prematurely at this stage,” said Vishnu Varathan, head of macroeconomic research for Asia Express. Japan in Mizuho (NYSE:) Bank.
“Despite steady inflation, household confidence remains fragile. Most importantly, interest rate hikes ahead of Trump 2.0 tariffs threaten to amplify potential demand shocks.”
At the same time, the euro rose 0.18 percent to $1.0370, compensating for its 1.34 percent decline in the previous session. The British pound was fixed near a three-week low at $1.25775.
Below, the dollar fell to its lowest level in more than two years at US$0.6200, while the New Zealand dollar bottomed at US$0.5614, also its weakest level since October 2022.
The index was further pressured by data released on Thursday that showed New Zealand's economy sank into recession in the third quarter, reinforcing the need for more aggressive interest rate cuts.
