© Reuters. FILE PHOTO: US dollar banknotes are shown in this illustration taken on March 10, 2023. REUTERS/Dado Rović/Illustration/File photo
Written by Samuel Indyk
LONDON (Reuters) – The U.S. dollar rose on Thursday after the Federal Reserve left interest rates unchanged, but signaled more rate hikes this year as attention turned to the European Central Bank’s policy announcement later in the day.
The Fed’s policy decision snapped a string of 10 consecutive interest rate increases, but the projections, or point chart, showed policymakers expected two more increases by the end of 2023. Chair Jerome Powell said rate cuts in 2023 would not be appropriate.
“The Fed has aggressively skipped,” said Mohit Kumar, chief financial economist for Europe at Jefferies.
“The revision of the point charts was tighter than our expectations as we were expecting an upgrade to reflect another potential increase.”
By 1026 GMT, the euro, which measures the currency against a basket of currencies, was up 0.2% at 103.09, recovering from a four-week low of 102.66 on Wednesday.
Market attention is now turning to other central banks’ decisions late this week, with the European Central Bank’s policy announcement due later in the day before the Bank of Japan on Friday.
The euro last settled against the dollar at $1.0841, after touching a four-week high of $1.0865 on Wednesday.
Money market traders expect the European Central Bank to raise the deposit rate by 25 basis points, with another quarter-point increase in July.
said Kristoffer Kjær Lomholt, Head of Forex and Corporate Research at Danske Bank.
Lumholt added, “We would prefer the US economy to do better than the eurozone…and then the dollar looks like a more attractive currency to buy compared to many other currencies, including the euro.”
The Bank of Japan follows on Friday, when it is expected to maintain its ultra-cautious stance and yield curve control settings.
“We don’t expect yield-curve control changes at tomorrow’s meeting, but we believe we are getting closer to that policy shift,” Danske Bank’s Lumholt said.
The yen fell 1% to 141.50 against the dollar, a level not seen since November 23 last year, as analysts look for more signs of intervention in the currency.
Lumholt added: “Dollar-Yen reached its highest levels in the year and the markets are increasingly talking about whether another rally could prompt the Bank of Japan to intervene verbally as well as actively in the foreign exchange market.”
A Japanese government spokesperson said on Thursday that volatile currency market movements are undesirable and that the authorities will take “appropriate” action as needed.
The dollar fell 0.6% to $0.6172 after data showed that the New Zealand economy slipped into a technical recession in the first quarter, putting further interest rate hikes in doubt.
China touched 7.1916 against the dollar, the weakest since November, after the People’s Bank of China (PBOC) cut the borrowing cost of its medium-term policy loans for the first time in 10 months. The last time it was at 7.1619 per dollar.
This came after the People’s Bank of China (PBOC) cut the short-term lending rate on Tuesday, while analysts widely expect a cut in the country’s benchmark interest rates next week.
“After the interest rate cut earlier this week, there is a lot of expectation for more broad-based stimulus to support the economy,” said Sim Moo-seung, currency analyst at Bank of Singapore.