Dollar Holds Tight, Central Bank Meetings

The dollar edged higher. However, trading was choppy as investors awaited monetary policy decisions from the UK and the eurozone just a day after the US Federal Reserve shifted to the hawkish side.

For the fourth session in a row, the dollar rose slightly against the yen to as much as 114.24. Despite jobs data, the Australian dollar fell to as low as $0.714. This came after the central bank chief said he thought interest rates would not need to rise in 2022.

Market expectations on whether the BOE will raise interest rates have shifted back and forth as the central bank tries to contain inflation while also addressing concerns about an economy plagued by the fast-spreading Omicron coronavirus variant. Data showed that inflation in the United Kingdom rose to 5.1 percent in November, the highest level in more than a decade, just as the country recorded its highest daily coronavirus cases since the pandemic began.

Currencies

The pound was unchanged at $1.3252, while the euro was unchanged at $1.1286.

In international trade, the Fed announced ending its pandemic-era bond purchases in March. This will pave the way for three quarter-point interest rate hikes by the end of next year.

The dollar index, which compares the currency to six others, rose to 96.914 before falling to 96.296. 

Furthermore, the fact that risk assets performed so well in response to the latest pivot reinforces the notion that the US dollar and risk sentiment appear negatively correlated.

After the meeting, all three major US stock indexes reversed earlier losses and climbed into positive territory.

To some extent, the reaction to the Fed may have to wait for what the ECB does. After rallying on Wednesday, bitcoin has since dipped and was the last, trading around $48,700.