Forex Today: US Dollar holds gains as markets weigh Fed rate hike, BoJ move in focus
Here is what you need to know on Friday, September 18:
The US Dollar Index (DXY) posts modest gains around 100.30 on Friday as traders continue to assess the latest Federal Reserve (Fed) rate hike and policy cues. On Wednesday, the US central bank decided to raise its benchmark interest rate by a quarter-percentage point to a range of 3.75% to 4.00%. This is the first time the Fed has raised rates since July 2023. Fed Governor Michelle Bowman’s speech is set to speak later on Friday.
Markets are now pricing in nearly a 53.1% chance of another US rate hike when the Fed meets next in October, compared with nearly 44% a day ago, according to the CME FedWatch tool.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.02% | 0.83% | -0.02% | -0.17% | 0.11% | -0.04% | |
| EUR | 0.04% | 0.01% | 0.90% | 0.00% | -0.16% | 0.17% | -0.01% | |
| GBP | 0.02% | -0.01% | 0.88% | 0.00% | -0.15% | 0.18% | -0.01% | |
| JPY | -0.83% | -0.90% | -0.88% | -0.85% | -1.03% | -0.72% | -0.89% | |
| CAD | 0.02% | -0.00% | -0.00% | 0.85% | -0.18% | 0.14% | -0.04% | |
| AUD | 0.17% | 0.16% | 0.15% | 1.03% | 0.18% | 0.32% | 0.14% | |
| NZD | -0.11% | -0.17% | -0.18% | 0.72% | -0.14% | -0.32% | -0.17% | |
| CHF | 0.04% | 0.01% | 0.01% | 0.89% | 0.04% | -0.14% | 0.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Traders remain glued to developments in the Middle East. On Thursday, Iran's Islamic Revolutionary Guard Corps (IRGC) said that a Togo-flagged oil tanker was struck while attempting to make an “illegal passage” through the Strait of Hormuz. The Iranian military also stated that it still controls the critical waterway and will not allow the passage of any aggressor.
US President Donald Trump said on Thursday that he was approaching a major decision on whether to resume large-scale attacks on Iran, as Washington weighs how to bring the months-long war to an end, per Axios.
As widely expected, the Bank of Japan (BoJ) raised its policy rate by 25 basis points (bps) to 1.25% from 1.00%, the highest level since 1995. The decision was split 7-2, with board members Toichiro Asada and Ayano Sato dissenting from the hike. BoJ said there is a risk that underlying inflation could overshoot its 2% target.
Asia FX rebound at risk as Fed repricing eclipses earlier Dollar tailwinds
Strategists at UOB Group warn that Asia FX could come under renewed pressure as markets “repric[e] for further Fed hikes,” a shift they believe “may spur portfolio outflows from the region, putting the year-to-date rebound in Asia Dollar Index in jeopardy.” They note that the US Treasury buyback programme “was a surprise Asia FX tailwind in Aug, reviving the USD debasement trade,” but judge that “its impact is likely now secondary to Fed’s hawkish tilt,” leaving regional currencies more vulnerable to sustained US rate strength.
BoJ flags sustained tightening risk as inflation nears target
The 8.2/10 FXS Speechtracker score is exactly in line with the speaker’s historic average, but the language marks a clear hawkish tilt as the BoJ signals that underlying inflation is approaching 2% and could overshoot. Repeated emphasis on moderately rising CPI, heightening inflation expectations, and cost pass-through from wages, alongside the acknowledgment that recent Yen depreciation is likely to lift prices, underpins a shift toward reducing monetary support even while financial conditions remain accommodative.
The commitment to “continue to raise interest rates” and to adjust the degree of monetary support to sustainably achieve the price target, combined with vigilance over Middle East risks, AI-related demand and FX volatility, reinforces a tightening bias that is supportive of the Yen. Dissent from board members Asada and Sato on the rate decision highlights internal debate over the pace of normalization, but the baseline scenario of a moderately recovering economy and inflation stabilizing around 2% keeps the overall tone firmly hawkish for JPY.
EUR/USD holds positive ground near 1.1485 in the European morning. The European Central Bank (ECB) lifted its key deposit rate by 25 basis points (bps) to 2.50% last week. According to Bloomberg economists, the ECB will wait until December before delivering a final interest-rate increase to quell inflation triggered by conflict in the Middle East, according to Bloomberg economists.
GBP/USD gains ground above 1.3350, snapping the four-day losing streak on Thursday. The Bank of England held the Bank Rate at 3.75% on Thursday, but warned a hike was becoming increasingly likely.
USD/JPY jumps above 157.00 in the European session on Friday. The BoJ decided to raise its policy rate by 25 bps to 1.25%, the highest level since 1995.
Gold rebounds from a six-week low to beyond $4,350 on Friday, bolstered by falling oil prices and easing US Treasury yields.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
