Dollar, yen gain as focus turns to ECB, BoE
The dollar and the yen gained broadly on Thursday as the euro and perceived higher risk currencies succumbed to profit-taking ahead of policy decisions by the Bank of England and the European Central Bank.
Traders were wary of extending the rally in riskier assets triggered after the U.S. Federal Reserve on Wednesday kept its commitment to low borrowing costs for an extended period, driving the safe-haven dollar lower.
The Bank of England will announce its decision at 1200 GMT, with the market braced for a possible further increase in asset purchases, while a European Central Bank decision and news conference follow at 1245 GMT and 1330 GMT.
Beyond that, closely-watched U.S. non-farm payrolls data is due on Friday and Group of 20 finance ministers meet on Friday and Saturday.
We've got a bit of profit-taking ahead of the BoE and the ECB, but the movements this morning signal a lot of nervousness, CMC Markets analyst James Hughes said.
There's so much to come that it will be hard to gauge how the market feels until mid-afternoon tomorrow (after the U.S. jobs data). I think this week has the potential to dictate where markets are going to go for the rest of this year, he added.
At 1041 GMT, the dollar index .DXY, which measures the dollar's value against a basket of currencies, was up 0.2 percent at 75.811, pulling away from Wednesday's one-week low of 75.60.
It hit a 14-month low of 74.94 in late October and has been in a downtrend since March.
The euro EUR= was down 0.2 percent to $1.4843, having added more than 1.0 percent on Wednesday. Against the yen, it lost 0.7 percent to 133.88 EURJPY=R after surging more than 1.4 percent in the previous session to its highest this week.
The dollar fell 0.6 percent against the yen JPY= to 90.18 yen.
But the dollar and yen were expected to remain under longer-term pressure after the Fed's pledge on low U.S. rates.
Low interest rates should ensure the dollar remains a funding currency in carry trades -- transactions in which investors borrow in low-yielding currencies to buy higher-yielding assets.
I see this as profit-taking and nothing else. After the Fed announcement the negative carry of the U.S. dollar versus other G10 currencies has increased and the risks are that the euro will move back above $1.50, said Michael Klawitter, currency strategist at Commerzbank in Frankfurt. Higher yielding currencies fell, with the Australian dollar down 0.4 percent at $0.7188 AUD=D4 and the New Zealand dollar down 1.1 percent NZD=D4 as a 0.5 percent fall in European shares .FTEU3 encouraged investors to cut risk exposure.
BOE AND ECB UP NEXT
Analysts were divided on whether the BoE would expand its quantitative easing policy by 25 billion pounds, 50 billion pounds or call a halt to it, while keeping key interest rates unchanged at a record low of 0.5 percent.
Sterling was down 0.4 percent at $1.6502 GBP=D4 and up 0.1 percent against the euro EURGBP=D4 at 89.91 pence but pared losses after better-than-forecast UK industrial production data.
The ECB decision was seen more predictable, with the central bank expected to keep rates at a record low 1.0 percent, though market players would keep a close eye on the news conference for any clues on possible exit strategies.
Ahead of the weekend's G20 meeting we don't expect the ECB head to say anything more than the usual support for U.S. policymakers desire for a strong dollar, Calyon analyst Stuart Bennett said in a note to clients.
Later in the day, U.S. weekly jobless claims data at 1330 GMT will be watched for any clues on how the U.S. jobs market is faring before monthly non-farm payrolls on Friday. ECON
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