NEW YORK, Feb 2 (Reuters) – The euro dipped against the dollar on Thursday after the European Central Bank (ECB) hiked interest rates by a widely expected 50 basis points and offered no new hawkish surprises, while the Bank of England (BofE) adopted a more dovish tone on inflation.
The ECB penciled in at least one more hike of the same magnitude next month and said it will then evaluate the subsequent path of its monetary policy.
The BoE also raised rates by 50 basis points and signaled that the tide was turning in Britain’s battle against high inflation, forcing investors to dial down bets on a more aggressive tightening of policy.
“The ECB was more or less in line with expectations and the Bank of England sounded a bit more dovish, so I think that’s helping to slow the dollar’s decline,” said Joe Manimbo, senior market analyst at Convera in Washington. “You get the sense that central bankers are taking a little bit of comfort from inflation moving in the right direction.”
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The euro fell 0.64% on the day to $1.0920 and sterling dropped 0.68% to $1.2290.
The dollar gained 0.61% against a basket of currencies to 101.56.
The dollar index fell to a nine-month low of 100.80 on Wednesday after Federal Reserve Chair Jerome Powell was interpreted as taking a more dovish tone on future monetary policy.
The U.S. central bank said it had turned a key corner in the fight against high inflation, but that “victory” would still require its benchmark overnight interest rate to be increased further and remain elevated at least through 2023.
Markets reacted by adding to bets that the Fed will stop hiking after an additional 25 basis points increase that is expected in March, and then cut rates in the second half of the year.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week as the labor market remained resilient despite higher borrowing costs and mounting fears of a recession.
U.S. worker productivity also increased faster than expected in the fourth quarter, resulting in a moderation in labor costs growth.
This week’s major U.S. economic release will be Friday’s employment report for January, which is expected to show that employers added 185,000 jobs in the month. (USNFAR=ECI)
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Currency bid prices at 9:41AM (1441 GMT)
Reporting by Karen Brettell; editing by Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
