FOREX-Dollar struggles after central banks show their hands

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Iain Withers

LONDON, Dec 17 (Reuters) – The dollar remained under
pressure on Friday at the end of a week in which major central
banks laid out plans to unwind pandemic-era stimulus, with the
Bank of England surprising markets with a rate hike.

The different paths underline deep uncertainties about how
the fast-spreading Omicron variant of the coronavirus will hit
the global economy, and the central banks’ differing views on an
inflation surge that is landing hard in the United States and
Britain, but less so in Europe and particularly Japan.

After a turbulent week, the dollar index was little
changed on the day at 96.005, while the euro and sterling
broadly consolidated the previous two days’ gains to stand at
$1.13310 and $1.33130 respectively.

“It seems the Fed pencilling in three hikes for 2022 and
(sounding) optimistic about the economic prosperity – even in
the face of Omicron – has allowed other central banks the
ability to take a more hawkish turn,” Chris Weston, head of
research at brokerage Pepperstone, wrote in a report.

The dollar index – which tracks the greenback against six
rivals – has lost around 1% since Wednesday, when the Federal
Reserve said it would end bond buying in March and paved the way
for three quarter-percentage-point rate hikes next year.

The Bank of England become the first G7 economy to raise
rates since the pandemic on Thursday while the European Central
Bank announced the end of its pandemic emergency asset-buying
scheme next March, albeit while promising copious support for as
long as needed via its long-running Asset Purchase Programme.

The yen nudged 0.1% higher to 113.55 yen, after
the Bank of Japan on Friday dialled back emergency
pandemic-funding but maintained ultra-loose policy, cementing
expectations it will remain among the most dovish central banks.

The Swiss franc also edged up 0.1% on the day to
0.91815, banking Thursday’s gains after the Swiss National Bank
also stuck to its ultra-loose monetary policy.

(Reporting by Iain Withers, Additional reporting by Kevin
Buckland in Tokyo; Editing by Kirsten Donovan)