Greenback eases from peak as oil prices extend decline; BOJ in focus

Published Thu, Sep 17, 2026 · 09:09 PM

[LONDON] The US dollar climbed to a seven-week high on Thursday (Sep 17) after the Federal Reserve raised rates and reaffirmed its commitment to curbing inflation, though it later eased as energy prices extended their fall on diminishing fears of supply disruptions.

The Fed raised rates and signalled further hikes, with chair Kevin Warsh reaffirming the central bank’s independence despite repeated calls from US President Donald Trump for lower borrowing costs.

American assets could have faced headwinds without clear Fed guidance, as concerns about Warsh’s perceived dovish stance might have fuelled doubts about the central bank’s commitment to containing inflation.

“The greatest danger for the US dollar lies in the US president increasing pressure on the Fed again in the coming weeks, which could lead to renewed doubts about the Fed’s independence,” said Michael Pfister, a strategist at Commerzbank.

“However, the Fed itself did its best yesterday to dispel these doubts.”

Markets remain far more hawkish than the Fed. While policymakers project one more rate hike in 2026 and a hold in 2027, investors are pricing in more than one additional increase this year and roughly three more by the end of 2027.

Wednesday’s Fed meeting signalled a clear intention to recalibrate monetary policy towards a more persuasively restrictive stance, noted analysts.

“We see upside risk to the length and size of the hiking cycle,” said James Egelhof, chief US economist at BNP Paribas, after flagging that Warsh’s comments implied that the current stance was meaningfully stimulative.

Oil prices support yen and euro

Oil prices eased on Thursday, extending losses on reports of Saudi Arabia offering extra crude cargoes through Oman.

The greenback tends to benefit from higher oil prices because the US economy is less exposed to energy shocks than many other major economies, attracting demand at the expense of currencies such as the euro and yen.

On Wednesday, Trump said he hoped an end to the US-Israeli war on Iran was near and a media report separately said he was expected to meet Gulf leaders on the sidelines of the UN General Assembly on Tuesday to discuss the conflict.

The dollar index, which measures the greenback against a basket of currencies, reached 100.36, the strongest level since Jul 31; it was last down 0.1 per cent at 100.20.

The euro rose 0.1 per cent to US$1.1475, after reaching US$1.1456, its lowest point in seven weeks.

The sterling dropped slightly against the euro and the dollar after the Bank of England held rates unchanged but warned that prolonged conflict in the Middle East may require tighter policy.

It was down 0.1 per cent at US$1.3366 and fell 0.23 per cent to £0.8587 per euro.

BOJ nest to watch

Japan will continue to strive towards maintaining orderly yen moves through close communication with the US, said Chief Cabinet Secretary Minoru Kihara, when asked about the Fed’s move.

The Bank of Japan (BOJ) is expected to raise interest rates to a 31-year high on Friday and signal its readiness to keep pushing up borrowing costs. Market participants are focused on any hints that BOJ governor Kazuo Ueda might give on the timing and pace of any further increase.

Mizuho expects the BOJ to normalise policy, but at a slower pace than markets currently anticipate, with rates reaching 1.75 per cent by mid-2027.

The dollar/yen dropped 0.43 per cent to 155.65.

A key market theme is the prospect of portfolio shifts by Japan’s Government Pension Investment Fund, with investors watching whether higher domestic yields trigger repatriation flows.

The yen jumped to a seven-month high against the dollar last week, as speculative positions flipped to net-long bets on growing conviction in BOJ’s policy-tightening path.

Japanese retail investors have maintained stubborn short positions, though, expecting that the yen’s recent gains would be short-lived. REUTERS