Dollar Index Surges as Japan Raises Rates, Ignoring Economic Reality

The US Dollar Index (DXY) has hit a fresh high of over 100.50, its best level since late July, following the Bank of Japan's decision to raise its interest rate to 1.25%, the highest since 1995.

The move was widely expected by markets, with futures indicating another Federal Reserve (Fed) increase on October 28 at better than even odds, which would take the rate to 4.50-4.75% by mid-2027.

The Bank of Japan's (BoJ) decision, however, has had a mixed impact on the Yen, with it weakening despite the interest rate hike. This is because the BoJ's Governor Ueda stated that the bank will continue to raise rates as the economy and prices allow, which may indicate further weakness in the currency.

The Euro, which makes up 57.6% of the DXY index, has been largely unaffected by the recent interest rate hikes, with economists predicting no further moves from the European Central Bank (ECB) before December.