Dollar rebounded after Fed keeps interest rates on hold

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Dollar rebounded after Fed keeps interest rates on hold

The dollar rebounded on Thursday after the Federal Reserve repeated it saw high inflation as transitory, while sterling dropped after the Bank of England unexpectedly kept interest rates on hold.

The Fed said a $15 billion monthly cut to its 120 billion monthly purchases of Treasuries and mortgage-backed securities, but Chairman Jerome Powell said he was in no rush to increase borrowing costs.

The move initially was seen as favorable to risky assets, with Wall Street indexes closing at record highs while the safe-haven dollar fell sharply against a basket of major currencies.

The overall picture painted by fresh upbeat data for the U.S. services industry was painted more balanced, investors took a more balanced view of the Fed monetary policy update.

The dollar index went back from a low of 93.80 points shortly after the Fed announcement on Wednesday to 94.319 around 1200 GMT on Thursday, its highest since October 13.

It is true that most people would have been looking for a drop to buy dollar, said Kit Jukes, a macro strategist at Societe Generale.

He said the euro was kept under pressure against the dollar, with the European Central Bank seemingly far behind the Fed in tightening.

The president of ECB Christine Lagarde pushed back on the market bets for a rate increase as soon as next October and said it was unlikely that such a move would occur in 2022.

The euro fell against the dollar on Thursday, down 1.5% against the dollar, and was also hit its lowest level against the Swiss Franc in 18 months, at 1.053 franc per euro.

The sterling, which initially led the gains on the dollar after the Fed move, suffered its heaviest losses against the dollar since September, after the Bank of England took investors by surprise and kept interest rate on hold.

Markets think it will become the first major central bank to raise rates since the COVID-19 crisis.

The pound was down about 1% against the dollar at $1.3552 and a1% against the euro at 85.23 pence at 1221 GMT.

It was a surprise for sure and it looks like they were a bit nervous and turned to data dependency, which keeps every meeting live going forward, said James Rossiter, a senior global strategist at TD Securities.

While markets were pricing in a rise from the BoE, economists polled by Reuters said the move was too close to call as Britain, like much of the world, seeks to balance its fight against inflation without compromising the economic recovery.

Norway's central bank said, according to analysts, that it plans to raise its key policy interest rate next month, continueing a campaign of monetary tightening that started in September.

The crown has strengthened by 7% against the euro in the last three months, so the crown has fallen slightly higher to 9.87 against the euro.

The dollar was in a good curve of the dollar's multiyear high of 114.69 yen hit last month.

The Reserve Bank of Australia made a dovish tone at its key meeting on Tuesday as the Aussie dollar lost 0.44% at a close to the levels it fell to on Tuesday.

In the world ofcryptocurrencies, bitcoin was down about 2% at $61,631, having largely traded sideways since it hit its all-time high of $67,000 last month.