By Herbert Lash and Joice Alves
NEW YORK/LONDON, March 21 (Reuters) – The dollar rose on Thursday as the strength of the U.S. economy and high interest rates along with a surprise move by the Swiss National Bank (SNB) to cut interest rates bolstered risk sentiment and the global appeal of the greenback.
Sterling slid after the Bank of England (BoE) kept its benchmark interest rate on hold as expected. But after the Federal Reserve declined to project a restrictive policy stance on Wednesday, clouds lifted on the U.S. economic outlook.
The SNB’s loosening of monetary policy suggests inflation is under control and other central banks will soon make their policies more accommodative, which has boosted the dollar, said Karl Schamotta, chief market strategist at Corpay in Toronto.
“The U.S. does remain the only game in town in global markets offering higher yields, in nominal and real terms, than any of the other major economic blocks,” he said.
“The flow of currency into the United States remains essentially unstoppable at this point given the optimism around where the U.S. economy is headed.
The BoE’s interest rate setters voted 8-1 to keep borrowing costs at their 16-year high of 5.25% as the two officials who had previously called for higher rates changed their stance.
Governor Andrew Bailey said there had been “further encouraging signs that inflation is coming down” but he also said the BoE needed more certainty that price pressures in the economy were fully under control.
Sterling GBP=D3 was last 0.7% lower on the day at $1.2697.
The BoE’s decision came a day after data showed inflation fell to its lowest level in almost two-and-a-half years – even if it remains higher than the bank wants.
The Swiss franc fell sharply against the dollar and sank to its weakest point since last July against the euro, after the SNB unexpectedly cut rates.
The euro EURCHF=EBS climbed against the Swiss franc to 0.979, the most since July 2023. It was last up 0.90% to 0.977. The dollar CHF=EBS rose 1.32% against the Swiss franc to 0.8986as the Swiss currency hit its lowest since November.
The SNB cut its main interest rate by 25 basis points to 1.50%, making it the first major central bank to dial back tighter monetary policy aimed at tackling inflation.
A majority of analysts polled by Reuters had expected the SNB to keep rates on hold. It was the bank’s first rate cut in nine years.
“It’s the first central bank in the developed world to ease, so that shows the direction where the others are going,” said Jan Von Gerich, chief analyst at Nordea.
The Turkish lira TRYTOM=D3 rallied 0.8% to 32.13 against the dollar after weeks of steady declines, as Turkey‘s central bank unexpectedly raised its key interest rate by 500 basis points to 50% on Thursday, citing a deteriorating inflation outlook and pledging to keep a tight stance until there is a significant and sustained drop in the trend.
The yen steadied against a strengthening dollar as it drew some support from expectations of further rate hikes from the Bank of Japan later this year and some jawboning efforts from Japanese government officials.
The dollarJPY=EBS was last 0.15% higher against the yen at 151.465, after the Japanese currency rallied in Asian trading and reversed some of its heavy losses in the wake of this week’s BOJ policy shift.
World FX rates https://tmsnrt.rs/2RBWI5E
(Reporting by Herbert Lash and Joice Alves; Additional reporting by Rae Wee; Editing by Sharon Singleton, Hugh Lawson and Andrea Ricci)
((Joice.alves@thomsonreuters.com;))
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