The US dollar strengthened heading into a second week of gains on Friday, with a rate hike in Japan unable to stem the surge, while a surprise interest rate cut in Switzerland underscored the gap between the Federal Reserve and others in setting interest rates.
This week has marked a shift in the direction of global monetary policy, after several major central banks made changes to their interest rates, or signaled that they plan to do so soon.
The US dollar is heading for its second biggest weekly gain against six major currencies, while rate-sensitive assets such as gold and stocks hit record highs.
Expectations for policy easing in China are also adding to pressure on its currency, which has depreciated sharply, unnerving equity investors and prompting the nation's banks to intervene.
The Swiss Central Bank earlier delivered the biggest shock with a central bank meeting, cutting interest rates and prompting a strengthening of the franc. The Bank of Japan on the other hand announced to exit from short-term negative rates.
The US Federal Reserve left the funds rate in a range between 5.25% and 5.5% this week and maintained its projection for three rate cuts by the end of the year. At the same time informed that they will not start taking steps until it has more confidence that inflation is decreasing towards 2% sustainably.
The dollar/yen pair strengthened 1.6% this week and is at a level that could prompt Japanese government intervention in 2022, sending investors scrambling to find other currencies to buy and build up reserves, or interest rate differentials.
The Euro/yen pair hit its highest level since 2008 this week at 165.37 and the Aussie broke 100 yen for the first time since 2014. With the US dollar strengthening, the euro hit a three-week low, trading 0.4% lower at $1.0816.
Sterling slipped 0.6% to a one-month low of $1.258, following a 1% drop on Thursday after the Bank of England left interest rates unchanged, and was supported by two committee members who had previously voted for a hike.
