US Dollar dips after BoE, ECB hikes

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US Dollar dips after BoE, ECB hikes

TOKYO, December 17, Reuters - The US dollar was under pressure on Friday, a day after the Bank of England and the European Central Bank took more hawkish stances than expected, giving a boost to sterling and the euro.

The dollar index, which measures the currency against six major peers including the euro and British pound, started at 95.933 on Thursday after a 0.61% two-day slide that took it as low as 95.850 for the first time since December 8.

The pound was up to $1.33305 after surging as high as $1.33755 for the first time since Nov. 24 in the previous session, when the BoE surprised market participants to become the first major central bank to raise interest rates since the beginning of the epidemic.

The euro held steady at $1.13315 after touching the highest this month, at $1.13605 0.5%, after the European Central Bank outlined plans to remove the stimulus over the coming quarters, although it also emphasised policy flexibility.

A cautious ECB taper and a surprise BoE hike likely leaves the dollar index heavy near-term, especially given lopsided long USD positioning into year's end, Westpac strategists wrote in a client note.

The Fed streets are ahead of the ECB in terms of tightening cycle, and dips into the mid- 95 level are a buying opportunity, and they said that weakness likely does not extend beyond the low 95 s for the dollar index.

On Wednesday, the Fed said it would accelerate a tapering of its bond-buying stimulus to end the program in March, setting up three quarter-point rate increases next year. The dollar index was initially at a three-week high before beginning its current slump.

The different paths taken by major central banks underscore deep uncertainties about how the fast-spreading Omicron variant will hit economies and how much each should do to fight surging inflation, which is hitting hard in the United States and Britain, but less so in Europe.

The Bank of Japan will announce its policy decision later on Friday, but there is no change to the core elements of its ultra-loose policy with inflation still well below the central bank's target.

The dollar was higher to 113.76 yen as the currency drifted in a 112.5 -- 114.3 range over the past three weeks.

The risk-sensitive Australian dollar fell 0.06% to $0.7178, easing back after jumping to a more than three-week high of $0.7224 overnight.