TOKYO – The dollar was supported on Thursday as doubts over the global economy’s strength subdued risk sentiment, while the euro steadied ahead of a European Central Bank policy meeting later in the day that is expected result in a reduction in stimulus.
The dollar index remained flat at 92.664, after three consecutive days of rises.
And US stocks to stepped back overnight from their high valuations as investors worried about the combination of slowing global growth, due in part to the spread of the COVID-19 Delta variant, and the potential tapering of central bank stimulus.
“One big difference versus Q4 or Q1 is that the range of economic and inflation consequences is much wider given the uncertainties on how COVID and inflation evolve,” said Steve Englander, head of global FX Research at Standard Chartered Bank’s New York Branch.
“Investors may be quick to bail out of risk, if it looks like one of these tail risks is becoming more prominent,” he added.
The euro steadied to around $1.1819, following a three-day retreat from Friday’s two-month high of $1.1909.
The European Central Bank is expected to reduce stimulus on Thursday, taking a token step towards unwinding the emergency economic aid it put in place during the pandemic.
Analysts polled by Reuters see ECB bond buying under its pandemic emergency purchase program (PEPP) falling to possibly as low as 60 billion euros a month from the current 80 billion, before a further fall early next year and the scheme’s end in March.
But at the same time, the ECB is expected to signal copious support for years to come, even after PEPP expires.
“If the ECB board is going to discuss reducing its bond purchase under PEPP, it will make sure that it will continue with its conventional asset purchase program,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
“So it is likely to be a policy change with a caveat. The euro may end up getting little boost in the end.”
The cautious mood saw the safe-haven Swiss franc firming slightly against other major currencies. The franc gained 0.15 percent to 0.9204 per dollar.
The yen was little moved at 110.20 yen to the dollar while the dollar held an upper hand against riskier currencies.
Sterling eased to $1.3763, having peaked at $1.38905 on Friday, while the Australian dollar slipped to $0.7357. – Reuters