By Rajwa Quasim
The U.S. dollar slipped Thursday after reaching a seven-week high in the previous session following the Federal Reserve’s latest interest rate hike. Investors are now turning their attention to the Bank of Japan, which is also expected to raise interest rates.
The dollar had a strong run after the Fed raised its benchmark interest rate by 0.25 percentage point to a range of 3.75% to 4%. The decision was widely expected, but the Fed suggested that further rate increases could be needed to address inflation.
The dollar index jumped 0.7% Wednesday. The index measures the U.S. currency against six major currencies. On Thursday, it slipped 0.2% to 100.07 as U.S. Treasury yields eased.
The Fed indicated that rates could rise once more this year, but investors believe there could be more than one additional hike in 2026 and three more by the end of next year. Stocks and bonds both fell Wednesday after officials raised interest rates.
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Higher interest rates can support a currency by making assets denominated in that currency more attractive to investors. This helped push the dollar higher following the Fed’s announcement. But on Thursday, the currency lost some of that momentum.
Analysts said the dollar could face pressure if the Fed does not raise rates as quickly as markets currently expect.
The euro recovered 0.3% to $1.494 after falling to $1.456. The British pound also weakened slightly after the Bank of England kept interest rates unchanged but warned that persistent tensions in the Middle East could add to inflationary pressures.
Falling oil prices and reports that Saudi Arabia was arranging additional crude shipments through Oman helped ease some concerns in the energy market.
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Energy prices remain a concern for investors because higher oil prices can contribute to inflation, potentially influencing central bank interest rate decisions. At the same time, higher oil prices can benefit oil-producing economies because investors may view them as less vulnerable to energy shocks than other economies.
Investors are now awaiting the Bank of Japan’s decision Friday. The central bank is expected to raise its benchmark interest rate to 1.25%. If it does, that would be the highest level in 31 years.
The yen strengthened Thursday, with the dollar falling 0.4% to 144.72 yen. Japan said it would continue working with the U.S. to maintain stability in currency markets.
Investors will also closely watch Bank of Japan Gov. Kazuo Ueda’s comments and guidance. A more aggressive stance could affect the yen and add another layer of uncertainty to global currency markets.