As the dust from the Federal Reserve’s recent policy decisions began to settle, the USD/JPY pair climbed near the 149.00 mark during trading hours in North America on Thursday. This rise was spurred by a notable rally of the US Dollar following the outcome of the Federal Reserve’s monetary policy meeting. The US Dollar Index (DXY), which measures the currency’s strength against six other major currencies, surged to approximately 104.00 after garnering significant buying interest around the five-month low of 103.20.
In an anticipated move, the Fed kept interest rates steady at the 4.25% to 4.50% range for the second consecutive period. The central bank also stuck to its prediction of two interest rate cuts within the year. Fed Chair Jerome Powell highlighted that the bank was not rushing to slash interest rates, citing the “unusually elevated” uncertainty due to policy changes implemented by the new administration.
Powell further expressed concerns that President Trump’s tariff policies could potentially decelerate growth while fueling inflationary pressures.
On the economic data front, Initial Jobless Claims for the week ending March 14 registered at 223K, closely aligning with predictions and previous figures.
Despite investors leaning towards the US Dollar against the Japanese Yen, the USD found itself outperforming other currencies amidst a backdrop of market unease. Risk-averse sentiment dominated as investors braced for President Trump’s planned reciprocal tariffs on April 2, which could sharply impede global economic growth.
Turning to domestic matters, the Bank of Japan (BoJ) maintained interest rates at 0.5% on Wednesday, reiterating ongoing high uncertainty surrounding Japan’s economy and pricing.
For those keeping track of the Japanese Yen today, it performed robustly against the New Zealand Dollar among other major currencies. The displayed data table highlights the percentage change of the Yen against a selection of prominent global currencies.
In a broader sense, the dynamics of the US Dollar remain pivotal to the global financial markets. It serves as the official currency of the United States and has a substantial presence in numerous countries alongside their local currencies. According to 2022 data, the Dollar is central to over 88% of all foreign exchange transactions, representing an average daily turnover of $6.6 trillion. Its dominance established post-World War II when it overtook the British Pound as the world’s main reserve currency. Although once underpinned by gold, the Dollar transitioned off the Gold Standard with the Bretton Woods system’s dissolution in 1971.
The Federal Reserve, shaping monetary policy, wields significant influence over the Dollar’s value. By adjusting interest rates, the Fed aims to control inflation and ensure employment, typically strengthening the Dollar when hiking rates to contain inflation but potentially weakening it when rates are reduced in response to low inflation or high unemployment.
In extremities, the Fed can deploy quantitative easing (QE), massively increasing credit flow in stagnated financial systems by purchasing government bonds—often resulting in a weaker Dollar. Conversely, quantitative tightening (QT), involving halting bond purchases, is generally supportive of a stronger Dollar.
These nuances highlight the intricate balance and strategic maneuvers involved in managing one of the world’s most influential currencies.
