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  • Writer's pictureanalysiswatch

Title: Dollar struggles after central banks show their hands

Dec 17, 2021 07:15AM ET

By: AnalysisWatch

The dollar remained under pressure on Friday at the end of a week in which major central banks unveiled plans to scale back pandemic-era stimulus and the Bank of England surprised markets with a rate hike.

The Bank of England surprised the markets with an interest rate hike. The different paths they took underscored the great uncertainty about how the fast-spreading variant of the Omicron coronavirus will affect the global economy and the divergent views of central banks about a surge in inflation, which is harsh in the United States and the United Kingdom but less so in Europe and especially in Japan.

After a turbulent week, the dollar index rose 0.1% on the day to 96.104 but remained near the week's lows. The euro and the pound eased slightly after gains in the previous two days, trading at $1.13160 and $1.32870, respectively.

The dollar index, which tracks the greenback against six other currencies, has lost almost 1 percent since it jumped on Wednesday after the US Federal Reserve announced it would end its bond purchases in March, paving the way for three rate hikes of a quarter of a percentage point each next year.

The Bank of England became the first G7 economy to raise interest rates since the pandemic on Thursday, while the European Central Bank announced the end of its emergency pandemic asset purchase program next March, though it promised substantial support for as long as needed through its long-standing asset purchase program.

The yen gained 0.2% to 113.485 yen after the Bank of Japan withdrew pandemic emergency funding on Friday but maintained its ultra-loose policy, underpinning expectations that it will remain among the most restrictive central banks.

The Swiss franc was broadly unchanged on the day at 0.91965, benefiting from Thursday's gains after the Swiss National Bank also maintained its ultra-loose monetary policy.

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