Dollar holds gains against sterling, yen as central bank decisions loom

The dollar held gains against its major counterparts on Thursday as markets positioned for central bank decisions in Britain, Europe and Japan.

Sterling remained lower after an unexpected drop in UK inflation backed the case for a rate cut by the Bank of England.

The yen trimmed losses from the previous session as the Bank of Japan starts a two-day meeting that is expected to result in a hike in policy rates to a three-decade high.

"There'll be a generally stronger dollar," said Ray Attrill, head of FX strategy at National Australia Bank. The surprisingly weak UK inflation readout in the prior session "has sealed the deal for a BOE rate cut later today."

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 98.35 after a 0.2% advance in the prior session.

The yen strengthened 0.2% against the greenback to 155.45, trimming a 0.6% slide on Wednesday.

The euro was little changed at $1.1743, while sterling was also steady at $1.3373 after a 0.4% decline in the previous day.

Interest rate futures have priced in a near 100% chance of a quarter-point rate cut from the BoE on Thursday following the surprisingly weak November inflation data. The European Central Bank is widely expected to hold rates steady when it meets on Thursday.

Over in Asia, the BOJ is all but certain to raise short-term interest rates to 0.75% from 0.5% at a two-day policy meeting ending on Friday, as high food costs keep inflation above the central bank's 2% target.

Japan must pursue proactive spending that will boost growth and tax revenues, Prime Minister Sanae Takaichi said on Wednesday, reiterating her administration's focus on shoring up a fragile economy.

In the U.S. there is uncertainty on when the Federal Reserve may cut rates again and who President Donald Trump will choose to succeed Fed Chair Jerome Powell.

Fed Governor Christopher Waller said on Wednesday the U.S. central bank still has room to cut interest rates amid rising job market weakness. That was in contrast to commentary by Atlanta Federal Reserve President Raphael Bostic, who said on Tuesday that he did not think that the Fed's decision to cut rates last week was warranted, and that he had penciled in no further reductions in borrowing costs for 2026.

The Australian dollar fetched $0.6600, down 0.1% in early trade. The kiwi traded at $0.5763, down 0.20%, largely shrugging off data showing New Zealand's economy returned to growth in the third quarter.

In cryptocurrencies, bitcoin gained 0.3% to $86,240.24, and ether rose 0.6% to $2,835.64.

-Rocky Swift/Reuters