Dollar Edges Higher; ECB, BOE Meetings Loom Large

© Reuters.

By Peter Nurse

Investing.com - The U.S. dollar edged higher Thursday, benefiting from a degree of risk aversion after disappointing results from Facebook (NASDAQ:FB) owner Meta Platforms, but the focus will be on central bank meetings in the U.K. and Europe. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged 0.2% higher to 96.095.

The dollar, seen as a safe haven in times of stress, has received some support after Meta Platforms reported disappointing earnings and a weak outlook, prompting a selloff in tech and social media stocks.

Risk-sensitive currencies, like the Australian and New Zealand dollars, struggled, with AUD/USD down 0.2% to 0.7119 and NZD/USD 0.1% lower at 0.6622.

The dollar index is up another 0.5% this year so far, having climbed nearly 7% in 2021, its best performance since 2015, as the Federal Reserve moved slowly to withdraw its extraordinary pandemic-era monetary support for the economy.

A Reuters poll of strategists found that the U.S. dollar is expected to reign supreme for at least another 3-6 months, but it will take a significant change in market expectations for Federal Reserve rate hikes to push it higher.

Away from the Fed, policy decisions from the Bank of England and European Central Bank are due at 7 AM ET (1200 GMT) and 7:45 AM ET respectively, and a news conference with ECB President Christine Lagarde is scheduled at 8 AM ET.

GBP/USD fell 0.2% to 1.3550, ahead of the Bank of England meeting. With inflation at a three-decade high, the central bank is widely expected to deliver the first back-to-back interest-rate increase since 2004, after a 15 basis-point hike in December.

“Presumably the inflation forecast will be revised a lot higher and the market will be interested in reading whether the BoE still feels CPI will be above the 2% target in 2-3 years’ time – even with all the tightening priced in,” said analysts at ING, in a note.

Inflation is also an issue in the Eurozone after data released on Wednesday showed consumer prices unexpectedly surged by a record 5.1% in January, more than double the ECB’s 2% target. The surprise was largely due to an overshoot in Italian inflation on Monday.

The ECB isn't expected to move at this meeting, but investors will carefully listen to President Christine Lagarde’s press conference for any changes to the outlook for its bond-buying, which will continue in reduced form even when the emergency pandemic program ends in March.

Elsewhere, USD/JPY rose 0.1% to 114.59 after Japan's services sector activity contracted at the fastest pace in five months in January, with the services PMI falling to 47.6 from the prior month's 52.1 and a 48.8 flash reading.

The world's third-largest economy has seen Covid-19 cases surge in recent weeks, forcing the government to roll out tougher curbs across much of the country.