Markets price 24 bps of Fed tightening by year-end while BoJ’s expected rate hike lacks hawkish follow-through, supporting the dollar.
The US dollar remains resilient as traders maintain expectations of 24 bps in Federal Reserve tightening by year-end, down marginally from 25 bps before the latest CPI data. While the Fed is poised to drop its easing bias, focus shifts to the dot plot and forward guidance, which could reinforce a tightening stance if aligned with market pricing. Elevated energy prices from US-Iran tensions may further pressure the Fed to act.
The Bank of Japan is set to hike rates next week, but the move appears driven by yen weakness rather than inflation concerns. The central bank is also expected to pause bond tapering, keeping monetary conditions accommodative and muting the hike’s hawkish impact. This policy divergence continues to favor USD/JPY upside.