Divergent Central Bank Policies Boost US Dollar
The Federal Reserve hiked interest rates for the first time in two years, pushing the US dollar to a seven-week high. The unanimous decision to increase the benchmark rate by 25 basis points to 3.75%-4.00% was followed by strong economic data, including a 1.2% rise in August retail sales and a 0.7% increase in import prices.
The US dollar's strength saw it gain against most major currencies, with the USD/JPY rising 1.6%, NZD/USD falling 1.0%, and GBP/USD down 0.8%. The Bank of England kept rates unchanged at 3.75%, while the Bank of Japan raised rates by 25bp to 1.25% in a split decision.
The divergence in central bank policies weighed on the yen, with the dovish tone from the BoJ contributing to its weakness. Markets will continue to monitor developments ahead of next week's meeting between President Trump and Gulf leaders as investors assess the potential for de-escalation in the Middle East conflict.