Yen rallies, dollar struggles post Fed

The yen rose to as high as 107.79 yen before settling at 108.06. (AFP pic)

LONDON: The Japanese yen rallied on Thursday after the Bank of Japan kept interest rates on hold, while the dollar struggled to move higher despite the Federal Reserve offering mixed signals about the path for further easing.

Elsewhere, the Norwegian crown is in focus as the central bank meets – the forecast is for the Norges bank to hike rates – while in Britain the Bank of England gives its policy decision later amid prolonged uncertainty about the Brexit outcome.

The Bank of Japan kept monetary policy steady – as expected – and signaled the chance of expanding stimulus as early as its next policy meeting in October by issuing a stronger warning over the risks threatening the economy.

But some in the market had expected the BoJ to signal a stronger chance of more stimulus in the context of central banks easing globally to boost growth.

“The BoJ did not sound as pessimistic (as expected), they didn’t strongly hint at easing steps to come,” said Thu Lan Nguyen, a currencies analyst at Commerzbank.

The yen rose to as high as 107.79 yen before settling at 108.06, up 0.4% on the day.

The dollar dipped slightly against a basket of currencies, as it struggled to gain despite a more hawkish than forecast tone from Wednesday’s Federal Reserve meeting.

The U.S. central bank, on a 7-3 vote, lowered the Fed funds target rate to a range of 1.75% to 2.00% “in light of the implications of global developments for the economic outlook.”

However, Fed Chairman Jerome Powell described U.S. prospects as “favourable” and the rate move as “insurance.” His remarks were not as dovish as markets had hoped for which lifted bond yields and – initially – the dollar.

On Thursday the dollar was down 0.1%, its index at 98.481 , while against the euro it was 0.1% lower at $1.1037 .

Analysts still see the dollar holding up well despite the reduced likelihood of more rate cuts.

“In the short term, this hawkish cut should still see the dollar well-bid, given that the path of interest rates outlined by the Fed is not close to that priced into the markets,” said John Veils, Americas FX and macro strategist at BNY Mellon.

The Australian dollar had its worst day in a month as expectations for more central bank rate cuts leapt after joblessness hit a one-year high.

The Aussie dropped 0.7% to a two-week low of $0.6782.

Norway’s crown fell against the euro and dollar before the Norges bank decision at 0800 GMT.

Sterling was flat at $1.2468. British retail sales numbers are due at 0830 GMT, and the Bank of England policy announcement at 1100 GMT.