Dec 19 2024: The U.S. dollar surged to a two-year peak on Thursday after the Federal Reserve indicated a slower pace of rate cuts in 2025, while the yen tumbled as the Bank of Japan (BOJ) kept rates unchanged and provided little clarity on its policy outlook.
Dollar Strengthens Amid Fed’s Hawkish Tone
The dollar rallied broadly following the Fed’s decision on Wednesday to reduce rates by 25 basis points while signaling fewer cuts next year. The dollar index held steady at 108.05, close to its two-year high of 108.27 reached earlier in the session.
Fed Chair Jerome Powell reiterated that future rate reductions hinge on further progress in combating stubborn inflation, prompting traders to pare back expectations for aggressive easing in 2025. Analysts predict an extended pause, with rates remaining on hold through at least mid-2025.
Yen Slides as BOJ Stays the Course
The BOJ kept interest rates steady as anticipated, causing the yen to weaken past the 156-per-dollar level for the first time in a month. The Japanese currency last traded nearly 1% lower at 156.30 per dollar.
BOJ Governor Kazuo Ueda, in his post-meeting remarks, provided no hints of imminent policy tightening. Instead, he emphasized the need for more time to evaluate economic data and assess potential impacts from U.S. President-elect Donald Trump’s incoming administration.
“The Fed’s pause and the BOJ’s hesitation suggest further upward pressure on the dollar/yen pair,” said Christopher Wong, a currency strategist at OCBC.
Global Currencies Under Pressure
The Fed’s hawkish stance sent ripple effects across global currency markets, with the Swiss franc, Canadian dollar, South Korean won, and others hitting milestone lows.
- The Swiss franc dropped to a five-month low of 0.90215 per dollar.
- The Canadian dollar sank to its weakest level in over four years, trading at 1.44655 per U.S. dollar.
- The South Korean won hit a 15-year low, while the Australian and New Zealand dollars slid to two-year lows.
Antipodean Currencies Struggle
The Australian dollar briefly touched $0.6199 before recovering slightly to $0.6234, up 0.26%. The New Zealand dollar fell to $0.5608, its lowest since October 2022, and last traded at $0.5639.
The kiwi faced additional pressure after data revealed that New Zealand’s economy slipped into a recession in the third quarter, solidifying the case for further aggressive rate cuts.
Awaiting BoE’s Decision
Sterling remained near a three-week low at $1.26005 ahead of the Bank of England’s policy announcement, where rates are expected to remain unchanged. Meanwhile, the euro edged up 0.42% to $1.03945 after a sharp 1.34% drop in the previous session.
As traders digest the Fed’s hawkish guidance, the dollar’s dominance appears set to persist, with potential for further upside in the coming months.
