The dollar edged slightly lower after strong gains on Wednesday but continued to trade on a strong footing due to rising yields spurring general risk-off sentiment in markets, Danske Bank Research said.
“The general risk-off sentiment in markets alongside rising yields is adding support to the dollar for the time being.” However, since the euro is also performing “decently,” keeping EUR/USD only just below 1.09, Danske said.
EUR/USD is expected to trade in a tight 1.0880-1.0950 range on Thursday, although ING still expects it to fall to 1.08 by the end of the first quarter.
Sterling continued to edge higher after Wednesday’s inflation data caused investors to scale back expectations for interest-rate cuts, and it could be on course to perform better than many analysts had expected.
ING said it will probably soon have to cut its current forecasts for EUR/GBP to rise to 0.88 later this quarter and 0.90 later this year, which now look too aggressive.
The inflation data resulted in a reduction of 20 basis points in 2024 U.K. rate-cut expectations, supporting sterling across the board, ING added.