FX Roundup: Dollar loses froth, BoE holds UK rate as expected

The dollar headed lower against a basket of major global currencies on Thursday, while the Bank of England held benchmark UK interest rates at 0.5% in line with market expectations.

At 1527 GMT, the dollar was broadly flat against the yen changing hands at JPY117.850. Concurrently, the euro rose 0.04% against the greenback exchanging at $1.0881, while the pound changed hands at $1.4420, up 0.09% yet firmly near recent five-and-half year lows against the US currency.

Continuing with major crosses, the dollar also fell 0.09% against the Swiss franc changing hands at CHF1.002 with the US Department of Labour noting initial unemployment claims in the country had increased by 7,000 to 284,000 over the seven days ending on 9 January. Economists at Barclays had pencilled in a rise to 275,000.

Elsewhere, the Bank of England voted 8-1 to keep interest rates unchanged at 0.5%. The UK central bank’s Monetary Policy Committee also said it would hold its asset purchase programme at £375bn, as expected by analysts.

Kit Juckes, head of forex at Societe Generale, said, “Given that EUR/USD is basically doing nothing, there isn't an obvious catalyst for euro strength. However, I fancy EUR/USD is more likely to break above 1.09 than slip below 1.08 at the back end of this week.”

“This does tempt me to buy EUR/GBP on any dip during the session as ‘Brexit' talk continues in the press as the ‘out' camp makes most of the running.”

Jane Foley, senior FX strategist at Rabobank, added: “The risk that UK’s EU membership referendum could be delayed until September and potentially beyond suggests that the pound could be in for a volatile year.”

“While the pound is vulnerable to both a dovish BoE and political uncertainty, EUR/GBP has already returned to levels not seen since last January. A step up in dovishness from the ECB should offer some resistance.”

Meanwhile, major commodity linked currencies got another day of reprieve with the dollar sliding marginally lower for a second successive session. While the greenback rose 0.19% versus the Canadian dollar changing hands at $1.4367, the Australian dollar clawed back 0.10% against its US counterpart exchanging at US$0.6962.

In Latin America, the dollar traded lower against major regional crosses, including the Colombian (down 0.55%), Mexican (down 0.29%) and Chilean (down 0.14%) pesos, and the Brazilian real (down 0.45%).