Dollar Holds Its Ground as Markets Wait on the Fed and the War
Japan was out for a holiday, which thinned out Asian trading considerably, and what was left of the market was not in a hurry to go anywhere
Quick overview
- Wednesday saw low trading activity in Asia due to Japan's holiday, with the euro and sterling showing minimal changes.
- The Federal Reserve's rate decision was the main focus, with traders more interested in Powell's comments on economic impacts and his future role.
- Iran nuclear talks stalled, leading to steady oil prices and a stable dollar amidst geopolitical uncertainty.
- The yen approached a critical threshold, with the Bank of Japan maintaining rates but signaling potential future adjustments depending on inflation pressures.
Wednesday was a holding pattern kind of day. Japan was out for a holiday, which thinned out Asian trading considerably, and what was left of the market was not in a hurry to go anywhere. The euro was barely changed at $1.1705 and sterling was just above $1.3513. Small moves in quiet conditions, with most participants content to sit on their hands before the Fed.
The Federal Reserve’s rate decision later in the day was the obvious focal point. A hold was fully expected, so the decision itself was not what traders were watching. What drew more attention was what Powell might say about the war’s economic spillover and, oddly, what he plans to do personally. His term as chair expires soon, but he remains a governor until 2028. Carol Kong at Commonwealth Bank of Australia put it plainly: whether Powell stays on as a kind of shadow chair, or walks out entirely, hinges on how he reads the threat to central bank independence. That question has no clean answer yet, and markets know it.
The Iran talks were going nowhere. Trump had issues with Tehran’s latest proposal, specifically the part that pushed nuclear discussions to a later phase of the process. He wanted that on the table from the start, and the Iranians were not offering that. Oil held where it was, and the dollar quietly absorbed the demand that tends to show up when geopolitical risk has no obvious exit. The dollar index was near 98.68 by mid-session.
The yen at 159.63 was close enough to a sensitive threshold that no one in Tokyo was looking away. The BOJ had met the day before and left rates where they were, though Ueda made clear the bank was not ruling out a move if inflation pressures from the energy shock continued building without a significant hit to growth. Three of his colleagues had actually voted to raise rates on the spot. OCBC’s Sim Moh Siong read the situation as one where the yen’s downside is capped by intervention risk near current levels, but the path higher is not obvious either.
Australia’s dollar dipped slightly after domestic inflation data came in with core measures just under forecasts, enough to keep the picture murky without resolving it.
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