Tokyo, 19 September 2025 — The U.S. dollar steadied in early Asian trading on Friday, pausing after a volatile week in which the Federal Reserve delivered its first rate cut in more than a year. Investors are now grappling with what comes next for U.S. monetary policy while also watching Japan, where the Bank of Japan (BOJ) is expected to hold its policy rate unchanged amid cooling inflation and political uncertainty.
The dollar index — which tracks the greenback against six major peers — edged up around 0.1% to 101.7 after hitting multi-year lows earlier in the week. The rebound reflects cautious sentiment after Fed Chair Jerome Powell emphasised that while rates are now lower, future policy adjustments will be data-dependent and gradual. Markets are betting on further cuts in October and December, but Powell’s “meeting-by-meeting” approach has left investors wary of assuming too aggressive a path.
Against the Japanese yen, the dollar climbed slightly to 144.80, with traders reluctant to push the yen higher ahead of the BOJ’s announcement. Analysts believe Governor Kazuo Ueda is unlikely to raise rates at this juncture, not only because consumer prices have softened, but also due to political shifts within the ruling Liberal Democratic Party (LDP), where a leadership contest is fuelling domestic uncertainty.
A Global FX Recalibration
The euro and the British pound both slipped modestly, reflecting renewed pressure after recent strength. In Europe, concerns about sluggish growth and fiscal unrest — including fresh protests in France against austerity measures — have capped the euro’s upside. The pound has been weighed down by the Bank of England’s dovish signals, suggesting it may lag behind the Fed and the European Central Bank in tightening cycles.
Commodity-linked currencies also lost some momentum. The Australian dollar slipped back toward US$0.66, pressured by weaker labour market data and soft iron ore demand from China. The New Zealand dollar tracked a similar path, underscoring broader risk aversion tied to China’s uncertain recovery. Emerging market currencies, including the Malaysian ringgit, were little changed but remain vulnerable to further U.S. dollar strength if Fed easing proves slower than markets anticipate.
Inflation, Labour, and Market Sentiment
Thursday’s U.S. jobless claims data, which showed the steepest weekly fall in nearly four years, reinforced the view that the U.S. economy remains resilient despite slowing inflation. For the Fed, this combination provides breathing space to ease cautiously without undermining financial stability. However, some analysts caution that if the labour market stays tight, the Fed may face a slower path to deeper rate cuts — a scenario that could limit downside risks for the dollar in the medium term.
Meanwhile, U.S. Treasury yields edged slightly higher, offering modest support to the greenback. Ten-year yields rose to 4.15%, reflecting confidence in the U.S. economy’s near-term resilience but also underscoring investor caution ahead of the BOJ meeting and further Fed commentary.
Outlook
Market watchers expect trading to remain choppy as investors recalibrate their positions. “We’re in a transition phase,” said one FX strategist. “The Fed has signalled the start of an easing cycle, but it doesn’t want to fuel expectations of aggressive cuts. That means currencies will swing on every data release, especially labour and inflation numbers.”
For Asia, the next cues will come not only from the BOJ but also from China, where authorities have been intervening to stabilise the yuan. A stronger U.S. dollar could complicate Beijing’s task of managing capital flows while supporting growth.
