Daily updates on foreign exchange news

Dollar holds tight as investors look beyond Fed to next big cenbank meetings

The dollar inched up on Thursday, but trading was choppy as investors awaited monetary policy decisions from the UK and euro zone, just a day after the U.S. Federal Reserve took its own hawkish turn.

The greenback climbed a little on the yen for the fourth session in a row to as much as 114.24, while the Australian dollar slipped to as low as $0.7146, despite good jobs data, after the central bank chief said he thought it unlikely interest rates will need to rise in 2022.

Trade was otherwise subdued as investors awaited the Bank of England at 1200 GMT - pricing indicates a small rise in interest rates is unlikely but not impossible - and the European Central Bank at 1245 GMT, with any change in rates far away. [BOEWATCH]

Market expectations about whether the BOE will raise rates have swung back and forth as the central bank is trying both to hose down inflation and address concerns about an economy the amid fast-spreading Omicron coronavirus variant.

Data on Wednesday showed UK inflation surged to 5.1% in November, its highest in more than 10 years, just as the country recorded its highest daily coronavirus cases since the start of the pandemic.

Sterling was little changed on the day at $1.3252, while the euro was steady at $1.1286.

In offshore trade, the Fed said it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022. 

That news and Fed chair Jerome Powell's press conference sent the dollar on a round trip in U.S. hours Wednesday. The dollar index, which measures the currency against six peers, rose to as much as 96.914 before falling to as low as 96.296.

The fall "suggests to me that markets were positioned for the Fed being more hawkish than survey expectations would have you believe," said Ray Atrill head of FX strategy at NAB.

"Also that risk assets took the latest pivot so well reinforces the fact that the U.S. dollar and risk sentiment seem to be negatively correlated."

All three main U.S. stock indexes reversed earlier losses and climbed into positive territory after the meeting. [.N]

"To some extent the reaction to the Fed might have to wait for what the ECB does, because we're expecting the contrast between the ECB's disposition and the Fed's will be laid bare later tonight, and that could probably be a catalyst for the U.S. dollar to push through the highs overnight," Atrill added.

Bitcoin drifted after rallying on Wednesday, and was last trading around $48,700.