Dollar rebounds, yen weakens... Impact of FOMC rate decision and Japan earthquake on the foreign exchange market

Source: BlockMedia Original Title: [Forex] Dollar Rises, Yen Slumps… FOMC & Japan Earthquake Shake Forex Market Original Link:

As the US Federal Reserve’s interest rate decision approaches, the market is leaning toward a limited easing stance, causing the dollar to rebound against major currencies. The yen plunged following a major earthquake in Japan, strengthening the overall risk-off sentiment in the forex market.

Dollar Index Rebounds

According to TradingView, as of 6:30 a.m. KST on the 9th, the Dollar Index (DXY) was up 0.13% from the previous day at 99.117, continuing a slight upward trend. At one point during the session, it surpassed the 99.2 level, indicating inflows of bargain buying for the dollar. After three consecutive weeks of decline, the dollar index is attempting a rebound amid growing expectations that the Fed will slow the pace of rate cuts.

FOMC Meeting and Interest Rate Outlook

The market widely expects the Federal Open Market Committee (FOMC) to lower its benchmark rate by 0.25 percentage points this week. However, since a so-called “hawkish cut”—meaning a limited easing stance—is likely to be expressed, the dollar is seen as more likely to rebound than decline further. The Fed is expected to lower its benchmark rate from 3.75–4.00% to a range of 3.50–3.75%, marking the third consecutive rate cut this year.

Major Currency Trends

The dollar rose against most major currencies. The yen, in particular, weakened sharply after news of a magnitude 7.6 earthquake in northeastern Japan. The USD/JPY exchange rate rose 0.3% to 155.97 yen, and the EUR/JPY rate also climbed 0.3% to 181.42 yen. The yen’s decline is interpreted as being accelerated by speculation that the Bank of Japan (BOJ) may delay its interest rate hike schedule due to the earthquake’s aftermath.

The euro temporarily rose as German long-term government bond yields hit their highest level since 2011, but then slipped to $1.1639 as dollar strength prevailed. The European Central Bank (ECB) is seen as unlikely to cut rates next year, with some officials even hinting at possible additional hikes.

The Australian dollar surged to a two-and-a-half-month high of $0.6649 amid strong inflation, growth, and consumption data, but then retreated 0.3% to $0.6621 on profit-taking. The Reserve Bank of Australia (RBA) is expected to keep its policy rate unchanged at its meeting on the 10th, but the possibility of further hikes in the first half of next year remains.

The Canadian dollar, which had been strengthening following strong employment data released last week, fell 0.3% on the day to 1.3850 CAD. The Bank of Canada (BOC) is also expected to keep rates on hold at this week’s meeting.

The British pound was flat against the dollar at $1.3327.

Market Focus Points

Meanwhile, the market is also watching the Fed’s upcoming stance and whether there will be any internal divisions among its members. With speculative dollar long positions on the rise, analysts note that any visible disagreement between the Fed’s hawkish and dovish camps could influence the direction of the forex market.