Dollar Edges Higher; ECB Next as Central Bankers Meet By

© Reuters.

By Peter Nurse

- The ST short-term foreign exchange tradingdollar edged higher in early European hours Thursday, with policy decisions by central bankers in Australia, Japan and Europe jolting trading.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 93.835, with movements seen limited ahead of next week’s policy-setting meeting by the Federal Reserve.

USD/JPY traded 0.2% lower at 113.56 after the Bank of Japan kept its interest rates and asset buying plans unchanged Thursday. The central bank also cut its projection for economic growth this fiscal year and also reduced its inflation forecast to zero for the year ending in March 2022 from 0.6%, suggesting it will lag other central banks in reining in its accommodative monetary policies. 

Earlier in the day Australia’s central bank decided against buying a government bond central to its stimulus program even though yields were well above its target of 0.1%. This fuelled market expectation that the Reserve Bank of Australia will lift its 0.1% benchmark interest rate much sooner than the previous guidance of 2024, perhaps even by mid-2022.

AUD/USD traded 0.1% lower at 0.7504, still near its three month high.

Additionally, USD/CAD rose 0.2% to 1.2374 after the Bank of Canada ended its bond-buying stimulus on Wednesday, suggesting it could hike interest rates as soon as April 2022 as it seeks to tackle elevated inflation levels. 

EUR/USD traded flat at 1.1604, just above its 15-month low of 1.1523 hit earlier this month ahead of the European Central Bank’s policy-setting meeting later Thursday.

The ECB is widely expected to use its December meeting to announce key decisions about its emergency stimulus policies, but the strong rise in inflationary pressures has lifted rate-hike expectations.

“It still seems rather far-fetched that the ECB will move its benchmark rates as early as next year,” said analysts at Nordea, in a note, “and [ECB President Christine] Lagarde will probably seek to tone down current market pricing.”  

Elsewhere, GBP/USD edged lower to 1.3742 the day after U.K. Chancellor of the Exchequer Rishi Sunak delivered his annual budget, committing to real-term increases in spending on the back of upgraded forecasts to economic growth and tax revenues.

 

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