Next Up After Fed Hike: Will the Bank of Japan and Bank of England Follow Suit?

 

With the Federal Reserve's widely anticipated interest-rate hike now delivered, policymakers and Chair Kevin Warsh signaled an assertive, hawkish posture pointing to further tightening in the months ahead. The move propelled both the dollar and Treasury yields sharply higher.

 

Trading desks have rapidly pivoted their focus across the Atlantic and Pacific: the Bank of England is slated to announce its rate decision later Thursday, followed by the Bank of Japan on Friday, setting up another potential wave of global monetary tightening.

Fed Tightening Powers Dollar Rally

Early Thursday, the Federal Reserve delivered its first interest-rate hike in over three years, with Chair Kevin Warsh striking a decidedly hawkish tone in post-meeting commentary and mapping out one additional rate increase before the end of 2026.

 

The guidance sent both the U.S. dollar and Treasury yields surging in tandem.

 

"Warsh was considerably more hawkish than consensus expectations," observed Carol Kong, FX Strategist at Commonwealth Bank of Australia. "

 

His explicit forward guidance for additional rate hikes caught markets off guard, forcing traders to reprice policy paths higher and lending broad support to the greenback. Given our assessment of the FOMC's trajectory, we expect dollar strength to persist."

 

The dollar rallied broadly during the session. The U.S. Dollar Index (DXY), which gauges the greenback against a basket of six major peers, traded up to 100.33, its highest print since July 31:

 

• EUR/USD slipped to 1.1456, testing seven-week lows.
• GBP/USD held largely flat at 1.3377 ahead of the BoE’s midday announcement.
• USD/JPY hovered around 156.20, near a two-week trough, as participants positioned for Friday's BoJ decision.

 

According to the CME FedWatch Tool, interest-rate futures currently reflect an implied probability of roughly 90% that the FOMC will deliver another 25-basis-point rate increase before year-end.

Will the Bank of Japan Hike Tomorrow?

While the Bank of England's announcement is due at 11:00 GMT on Thursday—with consensus broadly projecting a pause—the spotlight rests squarely on the Bank of Japan's Friday policy gathering.

 

Markets widely anticipate that the BOJ will lift its policy rate to a fresh 31-year peak on Friday, while signaling further upward adjustments in benchmark borrowing costs to align with global peers battling persistent inflationary impulses sparked by crude supply disruptions.

 

Investors will scrutinize Governor Kazuo Ueda's press conference for forward guidance regarding the cadence and timing of subsequent tightening steps.

 

"The pivotal narrative will be how Governor Ueda characterizes the policy trajectory beyond September," OCBC analysts wrote in a research note. "

 

Given that underlying inflation remains sticky, the market is alert to any signals indicating an accelerated pace of monetary normalization."

 

The decision marks a critical stress test for the yen.

 

Last week, speculative flows flipped into net-long yen positioning on growing conviction that the central bank was poised to tighten, driving the currency to a seven-month high against the dollar.

 

However, domestic retail traders in Japan have maintained short yen positions, betting the currency's advance lacks fundamental staying power. The yen's near-term direction will largely hinge on the forward-looking signals Ueda delivers during Friday's briefing.