Dollar Soars as Rival Central Banks Falter

The US dollar is gaining momentum on the back of the Federal Reserve's hawkish stance. Despite a brief pullback on Thursday, the greenback resumed its upward trend due to the Fed's intention to raise interest rates in response to a strong economy and high inflation.

Rival central banks, such as the Bank of England and the Bank of Japan, have so far failed to match the Fed's decisiveness. The BoE refrained from tightening policy, while the BoJ's decision to raise rates was not unanimous, casting doubt on its next move being imminent.

The market is reacting as if the change were limited to the US, despite other central banks like the ECB and Reserve Bank of Australia having already begun their cycles. Andrew Bailey of the BoE pointed out that high global energy costs have had a limited impact on prices and wages in the UK so far, but this will happen over time, forcing the BoE to raise rates.

The market expects this to happen as early as November, which disappointed sterling supporters and sent the GBPUSD exchange rate to its lowest level since July. The Bank of Japan also failed to support the yen, with two members voting against raising the overnight rate from 1% to 1.25%. Sanae Takaichi appointed both.

The USDJPY pair soared by over 1.2% to 157.8, reaching a two-week high, as traders await further developments on interest rates. The return of demand for US assets and the cautious approach of rival central banks suggest that the US Dollar Index will continue to rise, having surpassed the psychologically important 100 level.