Dollar rebounds, sterling slumps

On Thursday, the dollar surged. The surge came as investors reset monetary policy expectations after the Federal Reserve reiterated that rising inflation was temporary. At the same time, the Bank of England surprised the market by leaving rates constant, sending the pound down.

The Bank of England stated that most policymakers still believed “there was utility in waiting” for more labor market data.

On Wednesday, the Fed announced a $15 billion monthly drop to its $120 billion in monthly asset purchases. However, Chair Jerome Powell said he was not in a hurry to raise borrowing prices. European Central Bank President Christine Lagarde pushed down on market expectations for a rate hike as soon as next October, saying such a move was highly improbable in 2022.

“The market has got to recalibrate itself in terms of how fast some of these major central banks may tighten policy,” said Edward Moya, senior market analyst at Oanda.

While the Fed may be slower than some of its counterparts in raising interest rates, its accommodative policy will boost economic growth, which will help the greenback. The dollar index rebounded from a low of 93.80 shortly after the Fed’s pronouncement on Wednesday.

The Fed

The lack of a rate drop by the Bank of England sent sterling, which had led to the dollar’s gains after the Fed, plunging. It was recently down 1.33 percent at $1.3502, its lowest level against the US dollar since Oct. 1, even as the Bank of England maintained the possibility of tighter monetary policy shortly. The Fed gave the market plenty of time to forget about tapering. They were highly effective in providing forward advice. The Bank of England, on the other hand, has been hawkish, and their failure to deliver on that hawkishness today went against market expectations,” she said.

Currencies

The ECB was trailing other major central banks in tightening. Hence, the euro fell as low as $1.1528, its lowest level since Oct. 12, when the single currency hit its lowest level since late July 2020, at $1.1522. It was the last trading at $1.1546, down 0.57 percent versus the US dollar.

The Australian dollar fell 0.62 percent to $0.7402, continuing its slide from Tuesday when the Reserve Bank of Australia took a dovish stance at its essential meeting.

Bitcoin was down 2.69 percent at $61,236.61 in the cryptocurrency market, having traded sideways since hitting an all-time high above $67,000 last month.

After reaching a record high of $4,670.81 on Wednesday, Ether, the second-largest cryptocurrency, was down 2.75 percent at $4,480.34.