By Rae Wee
SINGAPORE (Reuters) -The dollar was set to cap the week on a strong note on Friday as it notched a two-year high bolstered by a hawkish U.S. rate outlook, while the yen struggled to stay afloat as it again weakened to a new low.
Currencies took a breather after huge moves in the previous session sparked by a broad rally in the greenback. That drove its peers to milestone lows, with the South Korean won sinking to a 15-year trough, the Canadian dollar tumbling to its weakest in more than four years and the Australian and New Zealand dollars hitting two-year lows.
Central banks from Brazil to Indonesia also scrambled to defend their struggling currencies on Thursday.
Moves in the Asian session on Friday were more subdued, though that did not stop the yen from weakening to a five-month low of 157.93 per dollar, as it continues to remain under pressure from the Bank of Japan's reluctance to further raise rates.
It later recouped some of those losses and last traded 0.3% higher at 156.95 per dollar after top Japanese finance officials said the government is "alarmed" by recent foreign exchange moves and is ready to intervene if speculative moves were deemed excessive.
The BOJ kept interest rates unchanged on Thursday and its governor stayed vague on how soon it could push up borrowing costs, just a day after the Federal Reserve pointed to fewer U.S. rate cuts next year.
Some investors had expected the hawkish tilt from the Fed to give the BOJ some leeway to raise rates, or at least hint at an imminent hike in January.
"Based on the comments from Governor (Kazuo) Ueda yesterday, I think the BOJ will likely hike interest rates a bit more slowly in the coming year," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. "The base case is now for March as the next hike, but I wouldn't rule out January."
"The direction of travel is definitely up for dollar/yen," she said.
Data on Friday showed Japan's core inflation accelerated in November as rising food and fuel costs hit households.
Sterling slipped to a one-month trough of $1.2475 and was last 0.1% lower at $1.2489.
Bank of England (BoE) policymakers voted 6-3 to keep interest rates on hold on Thursday, a bigger split than economists had predicted as officials disagreed over how to respond to a slowing economy that remains beset by inflation pressures.
The outcome was interpreted as more dovish than expected by markets, with traders now pricing in about 53 basis points of rate cuts for 2025, up from around 46 bps before.