Key Highlights

  • The dollar index rose about 0.3% to its highest level in a month.
  • USD/JPY hit a fresh four-decade high above 163.
  • The ECB held rates at 2.25% and EUR/USD slipped back below 1.14.

The US dollar climbed to fresh highs against the Japanese yen, with the dollar index rising roughly 0.3% to its strongest level in a month. The move followed a European Central Bank decision to keep interest rates unchanged at 2.25%, alongside a warning that inflation risks from the energy shock remain unresolved.

ECB holds amid energy uncertainty

The ECB left its policy rate at 2.25% and signalled caution over the inflationary effect of surging oil prices. By holding steady while flagging unresolved risks, the central bank left markets uncertain about the direction of its next move.

The euro weakened in response, with EUR/USD slipping back below 1.14 as traders judged the ECB less likely to tighten aggressively than some peers.

Yen under pressure

USD/JPY hit a fresh four-decade high above 163, reflecting a wide gap between US and Japanese rate expectations. The yen has remained sensitive to interest rate differentials, and any repricing of Fed policy to tighter settings tends to widen that gap further.

A four-decade high underscores how persistent the divergence has become and keeps intervention speculation alive.

Diverging policy paths

The dollar's strength rests largely on diverging rate-hike expectations across major economies. Where the Fed is now seen as more likely to tighten in response to the energy-driven inflation scare, the ECB has signalled a more cautious stance and the Bank of Japan continues to lag.

These differing paths concentrate upward pressure on the dollar, particularly against the yen.