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Dollar on Back Foot Ahead of ECB Meeting

The dollar traded largely unchanged in early European trading Thursday, on the back foot as risk appetite returned to the market ahead of the latest European Central Bank policy-setting meetin

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 92.767, after pulling back from a 3 1/2-month high of 93.194 touched on Wednesday.

EUR/USD rose 0.1% to 1.1797, climbing from Wednesday's 3-1/2-month low of 1.1752, USD/JPY fell 0.1% to 110.14, GBP/USD rose 0.2% to 1.3732, recovering from the over 5-month low hit earlier in the week, while the risk-sensitive AUD/USD rose 0.2% to 0.7371.

Risk appetite has returned to the foreign exchange markets, causing the safe haven dollar to backtrack a little, after fears that the rise of Covid cases would hit world growth caused a sharp selloff in equities and more risky currencies earlier in the week.

“We see the recent dip in cyclical FX as a correction rather than a more pronounced trend and look for a recovery in higher beta currencies backed by hawkish central banks later this summer,” said analysts at ING, in a note.

Attention now turns to Europe, with the European Central Bank set to reveal its latest policy decision at 7:45 AM ET (1145 GMT), with the subsequent press conference from President Christine Lagarde of particular interest after she stated earlier this week that the meeting will have “some interesting variations and changes”.

“We still expect net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) to end in March 2022, while the pace of purchases will fall already during the autumn.

Nevertheless, easy monetary policy will continue for still a long time,” said analysts at Nordea, in a note.

The ECB isn’t the only central bank meeting Thursday.

South Africa’s central bank will probably keep the benchmark interest rate unchanged and lower

its economic-growth forecasts on Thursday with the country struggling to cope with a third wave of Covid-19 restrictions as well as deadly riots.

Additionally, Ukraine is set to leave its benchmark interest rate at 7.5%, unchanged for a second month after it lifted borrowing costs earlier this year as consumer prices began to ramp up.

At 3 AM ET, USD/ZAR fell 0.2% to 14.5679 and USD/UAH rose 0.1% to 27.232.

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