The U.S. dollar continued its upward trajectory after Federal Reserve policymakers decided to keep interest rates unchanged on Wednesday, while also revealing deeper divisions regarding the future path of monetary policy. Chairman Jerome Powell stated he would remain on the Board of Governors after his term as Chair concludes.
The U.S. Dollar Index climbed 0.4%, reaching its highest level since April 13.
"With Powell's term on the Board lasting until 2028, his decision to stay reduces the likelihood of another nomination process for a Fed seat," said Aroop Chatterjee, a strategist at Wells Fargo. "Coupled with the multiple dissenting votes from hawkish members, it's clear that the next meeting will feature a more vigorous debate on the policy outlook."
"Overall, this supports market expectations for fewer interest rate cuts, as risks to inflation have clearly increased," he added.
Earlier on Wednesday, Kevin Warsh, a candidate for the next Fed Chair nomination put forward by former President Trump, received support from the Senate Banking Committee.
The USD/CAD pair was largely unchanged at 1.3681, after having risen 0.2% earlier in the session to 1.3711. The Bank of Canada's decision to hold rates steady was in line with expectations.
The USD/JPY pair advanced by as much as 0.5% to 160.43, marking its highest level since March.
"As long as the move above 160 is relatively gradual, Japanese authorities might hold off on intervention until closer to 162, which appears to be the new line in the sand," said Andrew Hazlett, a foreign exchange trader at Monex Inc. "I think near 162, we could see rate checks or 'verbal' intervention, and actual yen buying might occur if the level is breached."
Ahead of Japan's Golden Week holiday period, a time typically characterized by lower liquidity and potentially amplified price movements, the Bank of Japan maintained its interest rate settings, offering only brief support to the yen. Japanese Finance Minister Shunichi Suzuki has stated that authorities are prepared to take decisive action. Notably, in 2024, Japan intervened in the currency market during the Golden Week holiday, including after a Fed policy meeting.
The EUR/USD pair fell 0.4% to 1.1671, heading for a third consecutive day of declines.
European Commission President Ursula von der Leyen commented that the repercussions of the conflict involving Iran could persist for months or even years.
In Spain, the Consumer Price Index for April rose 3.5% year-over-year, exceeding the 3.4% increase seen in March and also surpassing the median forecast from economists surveyed by Bloomberg.
The Australian and New Zealand dollars were among the worst performers against the U.S. dollar, each falling approximately 1%.
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