The U.S. dollar strengthens near a two-year high, driven by a hawkish U.S. rate outlook, while the Japanese yen weakens to new lows as the Bank of Japan maintains its dovish stance.
The dollar was poised to end the week on a high note Friday, hovering near a two-year peak fueled by a hawkish U.S. rate outlook, while the yen struggled to stay afloat, weakening to a new low. Currencies took a pause after dramatic swings in the previous session triggered by a broad rally in the greenback.
This surge pushed its peers to record lows with the South Korean won sinking to a 15-year trough, the Canadian dollar tumbling to its weakest in over four years, and the Australian and New Zealand dollars hitting two-year lows. Central banks from Brazil to Indonesia scrambled to defend their weakening currencies on Thursday. Early Asian trading on Friday was calmer, but the yen continued to decline, reaching a five-month low of 157.93 per dollar, as it remains under pressure from the Bank of Japan (BOJ)'s reluctance to further increase rates. The BOJ kept interest rates unchanged on Thursday, and its governor remained ambiguous about when borrowing costs might rise, just a day after the Federal Reserve signaled fewer U.S. rate cuts next year. Some investors had anticipated the hawkish shift from the Fed would give the BOJ more room to raise rates, or at least hint at an imminent hike in January, but the central bank offered few concrete clues. 'Based on Governor (Kazuo) Ueda's comments yesterday, I think the BOJ will likely hike interest rates a bit more slowly in the coming year,' said Carol Kong, a currency strategist at Commonwealth Bank of Australia. Data released Friday showed Japan's core inflation accelerated in November as rising food and fuel costs impacted households. Bank of England (BoE) policymakers voted 6-3 to maintain interest rates on Thursday, a wider split than economists predicted as officials debated how to address a slowing economy grappling with persistent inflation pressures
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