The dollar edged higher from losses early in the session after a stronger-than-expected reading on US third quarter GDP showed the economy grew at a 3.3% annual rate.
The number validated the Federal Reserve’s cautious new take-it-slow approach to easing, as did a bigger-than-expected fall in the number of applications for unemployment insurance to 220,000 last week.
Currencies around the world tumbled on Wednesday after the Fed decision sent yields higher and boosted the dollar, although many rebounded on Thursday in choppy trading conditions with thin volumes ahead of the holiday period.
The dollar index, which measures the greenback against six rival currencies, reached as high as 108.480 on the session, topping the 108.180 it reached in the prior session, which is its highest level since November 2022. It was last up 0.08% to 108.360.
The week has been chock-a-block with the last central bank policy meetings of 2024. The BOJ kept interest rates steady as expected, but the yen fell sharply as governor Kazuo Ueda gave little away in a post-meeting press conference.
The dollar rose 1.63% against the yen to 157.55, trading at its highest levels since July.
“The main focus has been on the central bank decisions, which were very dollar supportive overall. The Fed had a hawkish cut and the Bank of Japan delivered a dovish hold, and those were probably the main two drivers,” said Vassili Serebriakov, FX strategist at UBS in New York.
Investors had been looking out for hints of imminent BOJ tightening, particularly after the Fed struck a hawkish tone at its meeting a day earlier.
But the governor reiterated that policymakers would need more time to assess incoming economic data and the implications of US president-elect Donald Trump’s policies.
The fallout from the Fed continued to ripple across financial markets after traders heavily dialed back on easing expectations next year.
The euro, which tumbled 1.34% on Wednesday, managed to claw back some losses and was last 0.16% higher at US$1.036650.
“Since the election interest rate expectations in the US have gone up, but outside the US they’ve gone down whether you look at ECB or you know most other central banks,” said Ronald Temple, chief market strategist at Lazard in New York.
“And that leads to dollar strengthening as those interest rate differentials widen in favor of the US. So I think you should expect more dollar strengthening because I don’t believe the interest rate markets or the currency markets have fully priced in the implications of tariffs.”
The Bank of England held interest rates at 4.75% as expected on Thursday. Sterling dipped, weakening 0.58% to US$1.25.
The Canadian dollar sank to its lowest in more than four years at 1.44 per US dollar. The South Korean won tumbled to its weakest level in 15 years.
Fed chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation, sending global stocks plunging and bond yields spiking. The yield on benchmark US 10-year notes rose 7.2 basis points to 4.57%.
The Swedish and Norwegian crowns both rebounded against the dollar on Thursday, after Sweden’s Riksbank cut rates but Norway’s Norges Bank held them steady.
The Swedish crown strengthened 1% versus the dollar to 11.026, while the Norwegian krone pared earlier gains and was down 0.58% to 11.45.
The kiwi dropped to a two-year low before also ticking up. Data on Thursday showed that New Zealand’s economy sank into a recession in the third quarter. The currency was last up 0.16% versus the greenback to US$0.5632.
Australia’s dollar bottomed at US$0.6199, a two-year low, but was last up around 0.37%.