Dollar Holds Gains as Fed Rate Hike Triggers Asian Currency Volatility

The US dollar held its seven-week high as Asian currencies traded mixed following the Federal Reserve's first rate hike in three years. The dollar index remained around 100.30, little changed from the previous day's rise of 0.7%. The Fed voted unanimously to raise its policy rate by 25 basis points to 3.75%-4.00%, with officials pencilling in one more increase this year.

The Japanese yen steadied near a two-week low ahead of the Bank of Japan's policy decision on Friday, which is expected to see the BOJ raise its policy rate to a 31-year high and signal further increases remain possible.

DBS said it expects the dollar to remain within the broad 96-102 range established since mid-2025, arguing that the current environment does not resemble the US-led hiking cycle seen in 2022. Meanwhile, China expanded its onshore central clearing system to more foreign currencies, which could support Beijing's push to increase the yuan's international use.