- Dollar rebounds after Fed meeting, but gives back some gains
- Sterling tumbles after BoE keeps rates on hold
- Euro falls 0.41% against the dollar
(Changes dateline to New York from London; adds details on Bank of England policy decision; adds analyst quotes; updates prices)
The dollar rebounded on Thursday from a dip after the U.S. Federal Reserve repeated it saw high inflation as transitory, while the British pound dropped sharply after the Bank of England defied market expectations and kept rates on hold.
The Fed announced on Wednesday a $15 billion monthly cut to its $120 billion in monthly purchases of Treasuries and mortgage-backed securities, but Chairman Jerome Powell said he was in no rush to hike borrowing costs.
The U.S. dollar seemed to be consolidating and gave up some of its overnight gains at the beginning of the New York session, under pressure from Treasury yields, said Kathy Lien, managing director at BK Asset Management.
"Ultimately, 10-year Treasury yields are down 2.5% and I think that's going to keep the greenback under pressure. It’s going to be very difficult for the dollar to rally today," she said.
The BoE said most of it policy members still thought "there was value in waiting for additional inflation on near-term developments in the labour market" before deciding to ease off on stimulus.
But the British central bank kept alive the prospect of tighter monetary policy soon, saying it would probably have to raise rates from all-time lows "over coming months" if the economy performed as expected.
Markets had been pricing in a BoE rate rise, but economists polled by Reuters said the move was too close to call, as Britain, like much of the world, grapples with balancing rate rises to combat inflation without compromising the economic recovery.
The lack of a rate cut sent sterling GBP=D3 , which had initially led the gains on the dollar after the Fed, tumbling. It was last down 1.08% at $1.35375.
"The BoE rate decision was a lot more impactful in FX than the FOMC decision," said Lien.
"The Fed gave the market plenty of time to discount taper. They were very effective in their forward guidance. The Bank of England, on the other hand, had been hawkish and the fact that they did not deliver on the hawkishness today went against market expectations," she said.
The dollar index =USD swung back from a low of 93.80 points shortly after the Fed announcement on Wednesday to 94.249 points at 9 a.m. Eastern time on Thursday.
"I think most people would have been looking for a dip to buy the dollar," said Kit Jukes, a macro strategist at Societe Generale.
The euro, he noted, remained under pressure against the dollar with the European Central Bank seemingly far behind the Fed in tightening.
ECB President Christine Lagarde on Wednesday pushed back on market bets for a rate hike as soon as next October and said it was very unlikely such a move would occur in 2022.
The euro fell against the dollar on Thursday, down 0.41% at $1.15645.
The Aussie dollar AUD=D3 lost 0.55% to $0.7408, close to the levels it fell to on Tuesday after the Reserve Bank of Australia adopted a dovish tone at its key meeting.
In the world of cryptocurrencies, bitcoin BTC=BTSP was down about 2% at $61,589, having largely traded sideways since it hit its all-time high above $67,000 last month.
Ether, the second biggest cryptocurrency, hit a record high of $4,670.81 on Wednesday and was last down 1.68% at $4,529.48.
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