By Samuel Indyk

London (Reuters) – The U.S. greenback strengthened on Thursday after the Federal Reserve left borrowing prices unchanged however signalled additional fee hikes to come back as consideration turned to the European Central Financial institution coverage announcement later within the day.

The Fed’s coverage determination snapped a string of 10 consecutive fee hikes, however the projections, or dot plot, confirmed policymakers anticipate two extra will increase by the tip of 2023. Powell mentioned fee cuts in 2023 wouldn’t be applicable.

“Fed delivered a hawkish skip,” mentioned Mohit Kumar, chief monetary economist Europe at Jefferies.

“The revision to the dot plots was extra hawkish than our expectations as we had anticipated an improve to replicate yet another potential hike.”

The , which measures the foreign money in opposition to a basket of currencies, rose 0.3% to 103.26, recovering from a four-week low of 102.66 on Wednesday.

The market’s consideration is now turning to different central financial institution choices late this week, with the ECB coverage announcement on Thursday earlier than the Financial institution of Japan on Friday.

The euro was final down 0.1% versus the greenback at $1.0819 after touching a four-week excessive of $1.0865 on Wednesday.

Cash market merchants predict the ECB to lift the deposit fee by 25 foundation factors, with an extra quarter-point hike seen in July.

“Markets will likely be in search of communication on the stability of dangers and whether or not there is a want for additional fee hikes, however we expect the potential for large market strikes is way smaller than it has been for current ECB choices,” mentioned Kristoffer Kjær Lomholt, head of FX and company analysis at Danske Financial institution.

“Our choice is for the US financial system to do higher than the euro zone … and therefore the greenback seems like a extra engaging foreign money to purchase in comparison with many different currencies, together with the euro,” Lomholt added.

The Financial institution of Japan follows on Friday when it’s anticipated to take care of its ultra-dovish stance and yield curve management settings.

“We do not anticipate adjustments to yield curve management at tomorrow’s assembly, however we expect we’re getting nearer to that coverage shift,” Danske Financial institution’s Lomholt mentioned.

The yen plunged 1% to 141.50 per greenback, a degree not seen since Nov. 23 final yr, with analysts looking out for additional indicators of foreign money intervention.

“Greenback-yen is at yr highs and markets are more and more starting to speak about whether or not an extra rise may set off the BoJ to verbally and likewise effectually intervene within the FX market,” Lomholt added.

Japan’s prime authorities spokesperson mentioned on Thursday that unstable foreign money market strikes had been undesirable and the authorities would take “applicable” motion as wanted.

The greenback sank 0.5% to $0.6177 after knowledge confirmed New Zealand’s financial system slipped right into a technical recession within the first quarter, placing additional fee hikes unsure.

China’s touched 7.1916 per greenback, the weakest since November, after the Individuals’s Financial institution of China (PBOC) reduce the borrowing price of its medium-term coverage loans for the primary time in 10 months. It was final at 7.1595 per greenback.

That adopted a discount within the PBOC’s short-term coverage lending fee on Tuesday and analysts extensively anticipate a reduce within the nation’s benchmark charges subsequent week.

“Following the speed reduce from earlier this week, there’s a variety of expectation for extra wide-ranging stimulus to shore up the financial system,” mentioned Financial institution of Singapore foreign money strategist Sim Moh Siong.