By Peter Nurse

Investing.com - The U.S. dollar soared in early European trading Thursday, posting a new 24-year high against the yen after the Federal Reserve’s hawkish interest-rate projections contrasted with the Bank of Japan’s dovish stance.

At 03:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1% higher at 111.460, having earlier risen as high as 111.79 for the first time since mid-2002.

The U.S. central bank lifted rates by 75 basis points on Wednesday, as widely expected, but it also signaled that its policy rate would rise by 4.4% by year-end and top out at 4.6% by the end of 2023.

This suggests interest rates will climb higher and stay elevated for longer than the markets had previously priced in.

This dollar strength played out especially against the yen after the Bank of Japan held interest rates at ultra-low rates and maintained its dovish stance.

USD/JPY rose 1.1% to 145.56, climbing past the key 145 level and reaching its highest level since August 1998. This move brings 146.78 into play, the level reached before a joint Japan-US move to support the yen in 1998.

Japanese authorities have been muttering about intervention given the yen’s 20% slide against the dollar this year. This continued Thursday as Masato Kanda, vice finance minister for international affairs, said Japan has not intervened in the currency market yet but will "most certainly" do so when necessary.

EUR/USD dropped 0.2% to 0.9817, just off a new 20-year low of 0.9809, with the single currency already weighed by Russian President Vladimir Putin's move Wednesday to mobilize a portion of the country's 2-million-strong military reserve, upping the political temperature in the region.

GBP/USD fell 0.3% to 1.1231, just off a new 37-year low of 1.1221 ahead of the Bank of England's policy announcement later in the day.

The BoE is widely expected to increase interest rates for the sixth consecutive meeting later in the session, with an increase of 75 bps to match the Fed’s move - the current market favorite.

However, it’s debatable whether such a move will give the pound much of a boost given the country is heading for a deep recession at the end of the year, according to the Bank of England’s own forecasts, and the government is likely to have to borrow heavily to pay for the recently announced support to businesses for energy costs.

The risk-sensitive AUD/USD fell 0.7% to 0.6584, its lowest since mid-2020, while USD/CNY rose 0.6% to 7.0899, hitting an over two-year low despite a strong daily midpoint fix by the People’s Bank of China.