SINGAPORE: The dollar held just below multi-month highs on Thursday, with a recovery in appetite for riskier assets pulling it off recent peaks, while sterling was under pressure ahead of a Bank of England meeting where investors anticipate a dovish tone.
At $1.1495 against the euro, the dollar hasn’t budged a great deal, though it sits a fraction weaker from Tuesday’s three-month top of $1.1469.
Some of the largest movers overnight were the risk-sensitive Australian and New Zealand dollars which tracked a rebound in the stock market, as a sharp selloff in technology shares abated.
The Aussie rose 0.3% overnight, bouncing from its 200-day moving average, to trade at $0.6508 in the Asia morning. The kiwi lifted from a seven-month low to buy $0.5665.
The Antipodean currencies’ gains came despite a sharp rise in U.S. yields that followed some encouraging U.S. labour data and hints from the Treasury Department of a future increase in debt sales.
“The market was a little bit more sensitive to the improvement in risk appetite,” said National Australia Bank senior currency strategist Rodrigo Catril in Sydney.
Bigger moves, however, and especially any durable fall in the dollar would need a clearer picture of the U.S. economy than is currently available, he said, with investors and policymakers flying blind as a prolonged government shutdown halts data publication.
“The dollar carries better than the yen or the euro,” he said, referring to higher U.S. government bond yields. “So for now, gravity tells you the dollar will be supported.”
The dollar gained marginally on the yen overnight and was steady at 153.93 yen on Thursday.
The Bank of England is due to set its policy rate at 1200 GMT and while investors do not expect a cut from 4%, the policy committee is divided and the decision could be a close-run affair.
In any case, a 25-basis-point reduction is priced in for early next year and so the tone, even if rates stay on hold, is likely to be dovish and portend a cut in the future.
Sterling was steady at $1.3054 on Thursday, having scraped from a seven-month low of $1.3011 overnight.
“It’s difficult to see sterling getting a pop on this one. Even if they don’t cut…we think that they will signal that one is coming,” said NAB’s Catril.
A break below $1.30 would open the way to April’s low of $1.2712.
