Dollar Hits Three-Week Low Against Yen Amid Central Banks' Diverging Policies

The U.S. dollar fell to a three-week low against the yen after Federal Reserve Chair Jerome Powell's dovish stance clashed with Bank of Japan chief Kazuo Ueda's hawkish tone. Contrasting approaches from other central banks also influenced currency markets, with the dollar nearing its lowest levels versus the euro and sterling in over a year.

The U.S. dollar plunged to a three-week trough against the yen on Monday, driven by stark contrasts in monetary policies between the Federal Reserve and the Bank of Japan. Federal Reserve Chair Jerome Powell's dovish shift stood in sharp contrast to BOJ chief Kazuo Ueda's firm hawkish stance.

This divergence also pushed the dollar close to its lowest levels against the euro and sterling seen since early 2022. The dollar index, which weighs the greenback against a basket of six major currencies, hovered near its 13-month low.

Market expectations are set on the Fed initiating its loosening campaign on Sept. 18, with increased odds of a substantial 50-basis point cut. Meanwhile, the Euro and British central banks hinted at less aggressive stances. Traders predict further rate adjustments influenced by economic data and central bank actions globally.

(With inputs from agencies.)