Written by Gina Lee
Investing.com – The dollar fell on Friday morning in Asia, remaining under pressure as investors digested a surprise interest rate hike from the Bank of England (BOE) and the European Central Bank (ECB) adopted a more hawkish stance.
The US dollar index, which measures the greenback against a basket of other currencies, was down 0.03% to 95.990 by 10:26 PM ET (3:26 AM GMT).
GBP/USD rose 0.06% to 1.3326, while USD/JPY fell 0.06% to 113.64.
AUD/USD fell 0.18% to 0.7170 and NZD/USD fell 0.21% to 0.6783.
USD/CNY rose 0.04% to 6.3698.
The major central banks have adopted different policies as there is still uncertainty about the impact of the COVID-19 omicron variable on the economic recovery. The debate continues over the extent to which central banks should act to stem high inflation.
The pound rose to as high as $1.33755 for the first time since November 24 during the previous session, after the Bank of England raised interest rates to 0.25% in a surprise move as it released its policy decision on Thursday. It is now the first major central bank to raise interest rates since the start of the COVID-19 pandemic.
Meanwhile, the euro settled near $1.13315, after hitting its December highs, or $1.13605. The European Central Bank, in its policy decision on the same day as the Bank of England, announced plans to reduce assets over the coming quarters. However, the central bank also emphasized the flexibility of the policy.
“The cautious tapering of the European Central Bank and the sudden hike in the Bank of England are likely to leave the dollar index heavy in the near term, especially given the unbalanced long positions in the dollar through the end of the year,” Westpac analysts said in a note.
“But the weakness likely will not extend beyond the low 95s” of the dollar index, as the US Federal Reserve “advances” the “streets” of the ECB regarding the tightening cycle, and dips to the mid-95s are a buying opportunity, the note added.
The Federal Reserve turned hawkish in its latest policy decision, which was released on Wednesday. The central bank will speed up its asset-reduction program to end in March 2022, while anticipating quarter-point increases that year.
In the Asia Pacific region, the Bank of Japan kept the interest rate unchanged at -0.10% as it issued its policy decision earlier in the day. Despite maintaining investor expectations, inflation remains well below the central bank’s target.
The dollar fell, the Bank of England and the European Central Bank followed the hawkish leadership of the Federal Reserve while the Bank of Japan remained in place
The stability of the dollar after the decline resulting from the movements of the central bank
The Turkish lira hits a new low after Erdogan’s latest interest rate cut