The U.S. dollar stabilised at the beginning of Asian trading on Thursday following the Federal Reserve’s decision to maintain its policy interest rate. Chair Kevin Warsh’s comments left markets uncertain regarding the resolution of divisions within the rate-setting committee. The dollar index, which measures the greenback’s strength against six currencies, nudged up 0.1% to 100.89 following the announcement of U.S. air strikes in Iran. The British pound was 0.1% weaker at $1.3355 ahead of a Bank of England interest rate decision on Thursday, with market participants anticipating no change. The euro depreciated by 0.1% to $1.1457.

The Australian dollar remained stable at $0.6959, mirroring the steadiness of its New Zealand counterpart at $0.5795. Meanwhile, the yen held steady at 163.455 yen per U.S. dollar. Geopolitical developments have countered the previous weakness in the greenback, which had declined to its lowest level since July 20 following the Fed decision. “Despite three committee dissents in favour of a July hike, Chair Warsh stopped short of flagging an ​imminent hike, echoing June’s tone,” said analyst Fabien Yip.

“That ​is starting to unsettle investors: a Fed unwilling to commit to further tightening raises the question of ‌whether ⁠it can keep long-term inflation expectations anchored.” Treasury bonds exhibited a pronounced response to the Federal Reserve’s decision, as the yield on 30-year bonds surged to levels not seen in nearly twenty years. Fed funds futures indicate an implied probability of 42.6% that the Federal Reserve will maintain its current rate at the upcoming two-day meeting concluding on September 16, a notable increase from the 24% likelihood observed prior to the Fed’s most recent meeting, as reported.

“We continue to expect the Fed ​to remain on hold, but we have concerns that markets may ​react badly ⁠down the road to a perception that it is not moving when it should,” said Steve Englander. “There ⁠was considerable ​commentary by market participants on the vagueness of ​his answers to questions that in the past would have been answered directly.”