Markets look for catalysts from key central bank decisions
Surprise weakness in UK inflation firms case for BOE rate cut
Trump says next Fed chair to favour lower rates ‘by a lot’
TOKYO, Dec 18 (Reuters) – The dollar held gains against its major counterparts on Thursday as markets positioned for central bank decisions in Britain, Europe and Japan.
Sterling remained lower after an unexpected drop in UK inflation backed the case for a rate cut by the Bank of England. The yen trimmed losses from the previous session as the Bank of Japan starts a two-day meeting that is expected to result in a hike in policy rates to a three-decade high.
The dollar took in stride comments from U.S. President Donald Trump that the next head of the Federal Reserve will believe in lower interest rates “by a lot.”
“There’ll be a generally stronger dollar,” said Ray Attrill, head of FX strategy at National Australia Bank. The surprisingly weak UK inflation readout in the prior session “has sealed the deal for a BOE rate cut later today.”
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 98.39 after a 0.2% advance in the prior session.
The yen slid 0.1% to 155.87, extending a 0.6% slide on Wednesday. Japan’s currency weakened to a record 195.96 versus the Swiss franc, close to a record low.
The euro was little changed at $1.1744, while sterling was also steady at $1.3367 after a 0.4% decline the previous day.
Interest rate futures have priced in a near 100% chance of a quarter-point rate cut from the BoE on Thursday following the surprisingly weak November inflation data in the UK. The European Central Bank is widely expected to hold rates steady and signal little appetite for cuts in the near term when it meets on Thursday.
Over in Asia, the BOJ is all but certain to raise short-term interest rates to 0.75% from 0.5% at a two-day policy meeting ending on Friday, as high food costs keep inflation above the central bank’s 2% target.
Japan must pursue proactive spending that will boost growth and tax revenues, Prime Minister Sanae Takaichi said on Wednesday, reiterating her administration’s focus on shoring up a fragile economy.
The BOJ may raise rates twice in 2026 to contend with persistent, real negative interest rates, according to Vincent Chung, a Hong Kong-based fixed-income portfolio manager at T Rowe Price.
“There are some expectations that BOJ would not be hawkish in forward guidance and lead to some weakness in the yen, but we believe that this would be temporary,” Chung said.
In the U.S. there is uncertainty on when the Fed may cut rates again and if the central bank can maintain its independence as Trump muses about possible successors to Fed Chair Jerome Powell.
Fed Governor Christopher Waller said on Wednesday the U.S. central bank still has room to cut interest rates amid rising job market weakness. That was in contrast to commentary by Atlanta Federal Reserve President Raphael Bostic, who said on Tuesday that he did not think that the Fed’s decision to cut rates last week was warranted.
Trump, who wants to be consulted on Fed decisions, said at a broadcast from the White House that he would soon announce his pick to replace Powell at the end of his term in May.
“I’ll soon announce our next chairman of the Federal Reserve, someone who believes in lower interest rates, by a lot, and mortgage payments will be coming down even further,” Trump said.
All of the known finalists – White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh and Waller – advocate for interest rates to be lower than they are now though none has indicated policy should be as low as suggested by Trump.
The Australian dollar fetched $0.6607, up 0.05%. The kiwi slid 0.2% to $0.5762, largely shrugging off data showing New Zealand’s economy returned to growth in the third quarter.
In cryptocurrencies, bitcoin gained 0.6% to $86,509.67, and ether rose 0.3% to $2,828.33. (Reporting by Rocky Swift in Tokyo, Ankur Banerjee in Singapore Editing by Shri Navaratnam)
