NEW YORK/LONDON: The US dollar fell for a second day on Thursday as markets moved toward risk while sorting a raft of central bank policy statements for clues to coming differences in interest rates and economic strength.
The dollar index against major currencies was down 0.2% for the day in morning trading in New York after meetings of central banks including those of Europe, England, Switzerland and Norway.
The British pound rose as much as 0.8% on the dollar after the Bank of England became the first major central bank to raise interest rates since the beginning of the pandemic.
The euro climbed more than 0.3% for a second day after the European Central Bank said it would continue to cut its bond purchases.
“What a day,” Marc Chandler, chief market strategist at Bannockburn Global Forex said of the volatility.
The moves suggested that traders with short positions in the euro and sterling were closing out their bets, Chandler said.
The euro moves against the dollar also seem to be tracking changes in the spread between yields of two-year government securities on the two continents, Chandler said.
The euro was last up 0.1% to $1.1304.
The ECB said it will cut bond buys under its 1.85 trillion euro Pandemic Emergency Purchase Programme and will end the scheme as expected in March.
The ECB also outlined continuing support, that was less than some analysts expected, through its longer-running, but more rigid, Asset Purchase Programme (APP).
“The ECB has surprised the market with the relatively contained size of APP monthly purchases going forward,” said Jane Foley, head of FX strategy, at Rabobank in London.
Still, she said, “there are dovish elements in its statement with respect to the reinvestments of the PEPP and the fact that it could be resumed.”
Dovish elements in central bank statements are giving markets confidence to move toward riskier trades.
Sterling was last up 0.4% to $1.3323.
The US Federal Reserve said on Wednesday that it will end its pandemic-era bond buying in March, paving the way for an expected three interest rate hikes in 2022.
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