Herbert Lash and Joyce Alves
NEW YORK/LONDON (Reuters) – The dollar rose on Thursday after a surprise interest rate cut by the Swiss National Bank boosted global risk sentiment and underscored the dollar’s appeal amid strong U.S. economic growth.
Sterling fell after the Bank of England (BoE) left its benchmark interest rate unchanged, as expected. But after the Federal Reserve on Wednesday forecast less restrictive policy than expected, risk assets around the world rose sharply, as did the outlook for U.S. investment flows.
The SNB’s easing of monetary policy suggests inflation is under control and other central banks will soon make their policies more accommodative, pushing the dollar higher, said Carl Sciamotta, chief market strategist at Corpay in Toronto.
“The US remains the only country in global markets that offers higher yields in nominal and real terms than any other major economic bloc,” he said.
“The flow of currency into the United States remains virtually unstoppable for now, given the optimism about the direction the U.S. economy is heading.”
, a measure of the U.S. currency against six major trading partners, rose 0.75%. The euro fell 0.51% to $1.0862.
Fed Chairman Jerome Powell said on Wednesday that recent high inflation figures have not changed the overall picture of slowly easing price pressures in the United States.
Fed policymakers now expect the U.S. economy to grow 2.1% in 2024, exceeding its long-term potential and up significantly from the 1.4% growth seen in December.
“The big question for the dollar will be will the inflation rates we saw in January and February continue or will they start to slow?” said Brian Dangerfield, head of G10 currency strategy at NatWest Markets in Stamford, Connecticut.
“There was no clear move in a dovish direction, which you could argue was shown today by the Bank of England and apparently by the Swiss National Bank,” he said.
Differences in interest rates between the US and other major economies also helped the dollar. The benchmark yield rose 0.4 basis points to 4.273%.
The Bank of England’s rate setters voted 8-1 to keep borrowing costs at a 16-year high of 5.25%, as two officials who had previously called for rate hikes changed their stance.
Governor Andrew Bailey said there were “further encouraging signs of easing inflation” but he also said the Bank of England needed more confidence that price pressures in the economy were well under control.
Sterling was last down 0.99% at $1.266.
The Bank of England’s decision came a day after data showed inflation had fallen 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 fell to its weakest point since July 2023 against the euro after the SNB unexpectedly cut rates.
The euro rose against the Swiss franc to 0.979, its highest level since March 2023. It was last up 0.70% at 0.9753.
The dollar rose 1.26% against the Swiss franc to 0.8981 as the Swiss currency hit its lowest level since November.
The SNB cut its key interest rate by 25 basis points to 1.50%, making it the first major central bank to abandon tighter monetary policy aimed at fighting inflation.
The rate cut was the first in nine years by the Swiss central bank. Most analysts polled by Reuters expected the SNB to keep rates unchanged.
The yen steadied against a strengthening dollar as it received some support from expectations of further rate hikes from the Bank of Japan later this year and some aggressive efforts from Japanese government officials.
The dollar was last up 0.28% against the yen at 151.655 after the Japanese currency rose in Asian trading and clawed back some of its heavy losses following a policy change by the Bank of Japan this week.