Dollar Gains More than 1% on the Week

The dollar index rose to 100.4 on Friday, its highest level in one-and-a-half months, continuing to benefit from the latest FOMC decision and a weaker yen. The Federal Reserve raised the target range for the federal funds rate by 25bps to 3.75%-4%, as expected. The Fed also signalled at least one more rate hike this year, while Chair Warsh reaffirmed the central bank’s commitment to taming inflation, helping to restore market confidence in its policy stance and credibility. On the other hand, the Bank of Japan raised borrowing costs by 25bps, as anticipated, but two policymakers voted against the hike, suggesting that the central bank may not proceed with further increases as quickly as initially expected, and sending the yen lower. The dollar is up nearly 1.3% on the week.

The dollar index held around 100.2 on Friday, remaining close to seven-week highs as traders weighed the Federal Reserve’s policy outlook following its latest rate decision and amid softer oil prices. The index is heading for a weekly gain of more than 1% after the FOMC unanimously lifted the fed funds rate by 25 basis points to 3.75%-4%, marking its first increase in three years. Fed officials also indicated that additional tightening could come later this year as they seek to contain rising price pressures, with Chair Kevin Warsh noting that inflation remains elevated. The Bank of Japan is also expected to raise rates, while the Bank of England left borrowing costs unchanged on Thursday but cautioned that prolonged conflict in the Middle East could eventually require a rate hike. Meanwhile, oil prices extended their decline for a third session as Saudi Arabia worked to restore flows through its East-West pipeline, easing inflation worries.

The dollar index held above 100 on Thursday following a sharp gain in the previous session, hovering near seven-week highs after the Federal Reserve raised interest rates for the first time in three years and signaled further tightening this year to contain inflation. The FOMC increased the fed funds rate by 25 basis points to 3.75%-4%, as expected, in a unanimous decision. Fed Chair Kevin Warsh also said inflation remains too high, while data released last week showed core US inflation rose more than anticipated in August. Meanwhile, President Donald called for rates to be quickly lowered to 1% or below in a social media post, though he stopped short of criticizing Warsh. Elsewhere, the Bank of England is expected to keep rates unchanged today, while the Bank of Japan is scheduled to raise rates on Friday. On the geopolitical front, oil prices eased amid hopes that Saudi Arabia can restore energy flows through its East-West pipeline.