The U.S. dollar rallied in Asian trading on Thursday after the Federal Reserve signalled rate hikes later in the year, while China’s and New Zealand’s currencies fell on signs of weakness in those economies.
The market’s attention is now turning to other central bank decisions late this week, with the yen sliding to its weakest this year as the Bank of Japan begins its two-day policy meeting.
The dollar index rose 0.26% to 103.3, recovering from a four-week low of 102.66 on Wednesday after the Fed held interest rates steady but signalled that borrowing costs would increase by another 50 basis points (bps) by end-December.
The European Central Bank announces its next rate decision on Thursday, with markets pricing in a 25 basis-point hike and another in July before a pause for the rest of the year.
The Bank of Japan follows on Friday, when it is expected to maintain its ultra-dovish stance and yield curve control settings.
“In light of what the Fed has announced, it’s a hawkish pause,” said Bank of Singapore currency strategist Sim Moh Siong. “The message here is that the Fed is tightening, and this is why I think the dollar itself could stay supported in the near term.”