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Source: Newsmaker.id
The US Dollar Index (DXY) continued to strengthen during Friday's trading (Sept 18), reaching the 100.40 level—its highest point in approximately a month and a half. This dollar appreciation was driven by the market's reaction to the Federal Reserve maintaining a hawkish stance, alongside the weakening of the Japanese yen following the Bank of Japan's (BoJ) decision to raise interest rates while signaling a more cautious outlook.
The Fed raised interest rates by 25 basis points to the 3.75%–4.00% range, in line with market expectations. However, investor attention focused on forward-looking policy signals, as the US central bank kept the door open for at least one additional rate hike before the end of the year.
Fed Chair Kevin Warsh also reaffirmed the central bank's commitment to curbing persistently high inflation. This statement helped restore market confidence in the Fed's policy direction and bolstered the US dollar's appeal amidst expectations of higher interest rates for a longer period.
Meanwhile, the Japanese yen played a key role in the dollar's rise. The Bank of Japan raised interest rates by 25 basis points to a 31-year high, yet the decision failed to provide significant support for the yen. With two BoJ policymakers voting against the hike, the market concluded that subsequent tightening measures would likely not proceed as quickly as previously anticipated.
The divergence in policy direction between the Fed and the BoJ has kept the yield spread between US and Japanese assets a primary focus for the foreign exchange market. The dollar has benefited from expectations of high interest rates, whereas the yen faces pressure due to uncertainty regarding the pace of Japan's monetary policy normalization.
Newsmaker Analysis: The DXY's rise to the 100.40 level indicates that the market is once again placing a premium on the dollar following the Fed's firmer stance on inflation. However, the dollar's future trajectory will remain contingent on upcoming US economic data, particularly regarding inflation and the labor market. If the data supports the likelihood of further interest rate hikes, the dollar could remain strong; however, a shift in Federal Reserve expectations could trigger a correction. (arl)
Source: Newsmaker.id