The US Federal Reserve raised its policy rate by a quarter point to a range of 3.75-4.00% on Wednesday, matching the European Central Bank's (ECB) recent hike to 2.50% on September 10, and the Bank of Japan (BoJ) is expected to raise its rate to 1.25% on Friday, with the market pricing this move at 100% certainty [1][2]. Despite these synchronized hikes, the interest rate gaps between the Fed and both the ECB and BoJ remain unchanged, with the Fed's midpoint at 3.875% versus the ECB's 2.50% (a gap of 1.375 points) and the BoJ's expected 1.25% (a gap of about 2.625 points) [1][2].
The Euro has experienced a losing streak since the ECB's rate hike, falling every session and seeing its biggest drop after the Fed's move. EUR/USD is trading just above 1.1450, below both its long-run averages and the level before the mid-August rally, with resistance at 1.1500 and support at 1.1400 and 1.1350. The daily momentum gauge is at 15, its lowest since June, indicating a stretched move, though a bounce to 1.1500 would be considered only a pause unless the pair closes above 1.1600 [1]. The bias remains bearish below 1.1500, with the first objective at 1.1400 [1].
Similarly, the Japanese Yen has given back more than half of its early September rally, with USD/JPY rising three sessions in a row and trading just under 156.50 after the Fed's hike. The pair is roughly halfway back from the September low near 153.00 to the early-month high near 160.00. Momentum on the daily chart has turned up from its September low but is still in the lower third of its range, suggesting the rebound is early. Resistance is at 156.50 and just under 157.50, while support is at 155.00 and 154.00. The bias is bullish above 155.00, with the first objective at the 200-day EMA just under 157.50 [2].
Market implications are significant, as both the Euro and Yen have weakened against the US Dollar despite their respective central banks' rate hikes. The Fed's forecast projects US inflation not returning to 2% until 2029, while the ECB expects eurozone inflation at 2.5% next year. The BoJ is raising rates with consumer inflation below its 2% target, with August's national consumer prices (excluding fresh food) forecast at 1.8%, the same as July. Wholesale prices in Japan rose 7.6% in the year to August, which the BoJ cites as evidence that consumer inflation is coming [1][2].
Forward-looking statements include the ECB's next meeting scheduled for October 29, with no events expected to change its rate in the interim, and the BoJ's press conference set for Friday at 06:30 GMT, where Governor Ueda will address inflation figures. The market expects the BoJ rate at 1.48% by December and 1.85% by mid-2027, while the Fed's forecast has its rate at 4.1% at the end of 2027 with no cuts before then [1][2].
CONCLUSION
The Fed's rate hike has reinforced the US Dollar's strength, causing both the Euro and Yen to weaken despite their own central bank tightening. Persistent rate gaps and cautious inflation forecasts suggest continued pressure on these currencies, with market attention now shifting to upcoming central bank meetings and inflation data for further direction.