NEW YORK, Sept 21 (Reuters) - The U.S. dollar edged higher against the pound and the euro on Thursday, a day after the Federal Reserve held interest rates steady but stiffened its hawkish stance with a further rate increase projected by the end of the year.
The pound and Swiss franc tumbled on Thursday after the British and Swiss central banks kept rates unchanged, while the Japanese yen strengthened against the greenback before Friday’s Bank of Japan policy announcement.
The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it signalled that its officials increasingly believe hawkish policy can succeed in lowering inflation without wrecking the economy or leading to large job losses.
Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.
“Dollar bulls absolutely got what they wanted yesterday,” Helen Given, an FX trader at Monex USA.
“Though Powell didn’t go as far as to say he expects a soft landing, it’s pretty clear between the dot plot and the Fed’s updated growth forecasts the central bank has convinced markets that is where the U.S. economy may be headed,” Given said.
“Of course, this contrasts fairly directly with guidance from the ECB and BoE, facing much more dire economic situations,” she said.
The euro fell 0.02% to $1.0658.
The pound fell to its lowest since March after the Bank of England held interest rates steady on Thursday, following a cooler-than-expected inflation report the previous day.
Thursday marked the first time since December 2021 that the BoE did not raise rates at its monetary policy meeting, a halt to a run of 14 consecutive rate hikes.
The pound was 0.41% lower at $1.2293.
Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.
Meanwhile the yen was up 0.62% at 147.38 per dollar as attention stayed fixed on the possibility of the Japanese government intervening in foreign exchange markets to prop up the currency.
Japan will not rule out any options in addressing excess volatility in currency markets, the government’s top spokesperson said on Thursday, issuing a fresh warning against the yen’s decline towards the psychologically important 150-mark per dollar.
“Traders are repositioning before both the meeting tomorrow and CPI releases,” Monex’s Given said.
“(BOJ Governor Kazuo) Ueda did mention that if CPI continues strong the BoJ would look at raising interest rates – hence why it likely will not come tomorrow, but the following meeting is a great candidate for it,” she said.
“Any reading above expectations of 3.0% would put a hike from the BoJ squarely on the table, prompting today’s moves,” Given said.
Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.
The euro was up 0.4% against the Swedish krone and about flat against the Norwegian krone following the respective decisions.
In cryptocurrencies, bitcoin was down about 2.1% on the day at $26,563.
