Dollar rebounds as Euro Declines

The dollar rose on Thursday, recouping losses from the previous session. Meantime the Federal Reserve said it was not in a rush to raise interest rates after beginning to trim its bond-buying program.

The Dollar Index tracks the greenback against a basket of six other currencies. It was 0.2 percent higher at 94.088 after falling about 0.3 percent on Wednesday.

Furthermore, the EUR/USD declined 0.3 percent to 1.1577. The pair reversed Wednesday’s gains. The USD/JPY jumped 0.2 percent to 114.25, not far from the multi-year high of 114.69 set last month.

The Federal Reserve announced late Wednesday that it would reduce its $120 billion monthly bond-buying programs by $15 billion initially, as widely expected. Nonetheless, Fed Chairman Jerome Powell stated that the central bank would be “patient” in determining when to raise its benchmark overnight interest rate from near-zero levels.

The dollar fell on Wednesday as markets interpreted Powell’s comments as dovish, considering inflation was 30-year high. It has since recovered, however.

 The fact dollar remains near its recent highs against the EUR and JPY should serve as a reminder that:

A- the EUR and JPY appear to be better funding currencies than the dollar. Moreover, B-the Fed has fired the starting gun on policy normalization, eventually tighter dollar liquidity, higher US rates.

Currencies

GBP/USD dipped 0.2 percent to 1.3657. It went down from its weekly high of 1.3698 earlier in the day, as traders prepared for a Bank of England policy-setting meeting later in the session. GBP has already corrected slightly this week. We expect it will continue to do so if Governor Bailey fails to secure the support of at least eight of the nine members of the MPC in voting for a 15bp rate hike.

The USD/PLN traded 0.5 percent higher at 3.9608. In comparison, the EUR/PLN rose 0.1 percent to 4.5835 the day after Poland’s central bank boosted its benchmark interest rate by three-quarters of a percentage point.

The USD/CZK increased 0.3 percent to 22.0000. The EUR/CZK fell 0.1 percent to 25.4570 ahead of a Czech National Bank meeting.

To fight strong price inflation, the central bank raised interest rates by 75 basis points in September, the most significant increase since 1997, and set to do so again later Thursday.