The dollar fell back against the euro yesterday but firmed against the yen, as markets assessed the Federal Reserve’s outlook for US interest rates.
The day before, the dollar had rallied against both main rivals and the Dow reached a fresh record high after the US central bank kept alive the chance of a December increase in American borrowing costs.
Wall Street was weaker yesterday on profit-taking.
Fed chief Janet Yellen said the world’s biggest economy was “performing well”. It also emerged from the closely-watched meeting that most members of the policy board wanted to lift borrowing costs by December.
The central bank also announced it would next month begin cutting back on its holdings of bonds and other assets built up as part of a scheme to keep rates low and steer the economy through the global financial crisis a decade ago.
“The Federal Reserve’s intention to start shrinking its balance sheet in October and hike interest rates in December was positive for the US dollar,” said London Capital Group analyst Jasper Lawler. “The glacially slow pace of the intended unwind of QE (quantitative easing) meant there were no ruffled feathers in stock markets,” the expert said.
“The prospect of QT (quantitative tightening) could mean markets are in the last gasps of a two week rally, but there is no sign of sentiment souring yet.”
Accendo analyst Mike van Dulken agreed.
“Equities are taking the Fed’s latest policy tightening move in their stride. Probably because it was one of the most telegraphed moves ever, balanced up with the door being left ajar for another December hike...No drama, just like the Fed (and markets) prefer.”
While the dollar slid back against the euro, it rose further versus the yen after the Bank of Japan decided against altering its ultra-loose monetary policy.
The dollar’s gains come after a run of losses in recent months as tepid inflation and a lack of movement on US President Donald Trump’s economic agenda in Congress had seen investors bet on no more rate hikes this year.
The jump in the dollar against the yen boosted Japanese exporters, which helped the Nikkei index close 0.1-percent higher yesterday.
Across Europe, London’s FTSE 100 fell 0.1% to close at 7,263.90; Frankfurt’s  DAX 30 was up 0.3% at 12,600, while Paris’ - CAC 40 rose 0.5% at 5,267.29.
Shares in Germany’s second-largest lender Commerzbank leapt as rumours that the government might soon sell off its stake set financial circles abuzz.
The bank’s stock briefly added more than 5.0%, but was showing a gain of 1.5% at the close of trade, at €11.21.
In oil markets, both main contracts dipped following a rally of nearly 2% on Wednesday.
Data showed US petrol stockpiles have fallen to a 22-month low and there is speculation that Nigeria and Libya will join the OPEC-Russia production cuts.
Elsewhere, the World Trade Organisation upped its forecast for global trade growth in 2017 on stronger-than-expected demand for merchandise in Asia and North America.
A projection of 2.4% growth has been boosted to 3.6%, the WTO said.