London, December 16, Reuters -- Sterling and the euro went up on Thursday after the Bank of England became the first major central bank to raise interest rates since the beginning of the epidemic, while the European Central Bank said it would continue to cut its bond purchases.
The pound was 0.7% to a two-week high of $1.3368 after the BoE raised its main interest rate to 0.25% from an historic low of 0.1%.
The euro rose by 0.35% to $1.13350 after the European Central Bank said it will cut bond purchases under its 1.85 trillion euro Pandemic Emergency Purchase Programme and will end the scheme as planned in March. The ECB has surprised the market with its relatively small size of APP monthly purchases going forward, though there are dovish elements in its statement regarding the reinvestments of the PEPP and the fact that it could be resumed, said Jane Foley, head of FX strategy at Rabobank in London. She stated that the market was very long USD headed into this week and that the EURUSD has pushed higher. Money markets went up ECB rate hike bets after the central bank made a statement, and are now pricing in a 15 bps increase by Dec. 2022, up from 8 bps earlier in the day.
The Swiss National Bank's interest rates were unchanged on a busy day for central banks, a day after the U.S. Federal Reserve unveiled its tightening plans, a day after the Swiss National Bank raised its benchmark rate.
The SNB retained its key rate at 0.75%, while the Norges Bank raised its benchmark interest rate to 0.50% and said more hikes will likely follow next year.
The Swiss franc fell 0.15 versus the euro to 1.0454, not far away from its highest level since July 2015, while the Norwegian crown rose 0.4% versus the dollar to 8.94 crowns.
ING strategists said that Norges Bank has carried on as planned with a 25 basis point rate hike despite Omicron. The dollar fell 0.4% to a one-week low of 95.989, after hitting a three-week high the previous day, as the Fed said it would end its pandemic-era bond buying in March and pave the way for an expected three interest rate hikes in 2022, due to the fact that policymakers had signalled the move fairly explicitly over recent weeks. The Swedish crown rose 0.6% versus the U.S. dollar to 9.03 as data showed that unemployment in the country fell to 7.5% in November.