Dollar falls during uninspiring trade amid US holiday

The dollar was on the decline in holiday-thinned trade, while the pound surrendered some ground after hitting a roughly one-month high in the wake of the UK government budget.

Against the dollar, sterling perked up to USD1.3237 from USD1.3198 a day prior. Versus the euro, the pound was largely unmoved at EUR1.1413 from EUR1.1415.

Sterling had bought USD1.3268, its best level since late-October.

XTB analyst Kathleen Brooks commented: "Overall, the bond market gave a nod of approval to Rachel Reeves' budget on Wednesday. The GBP22 billion fiscal buffer is enough to placate bond markets who are willing to look through increased borrowing in the coming years compared to the OBR's last estimate. The fiscal risk premium is being eroded from UK yields, even if gilts are underperforming today. The 30-year UK yield is approaching the 5.2% level, as the pre-budget angst that pushed up yields in recent weeks reverses course.

"However, UK long end gilt yields are still more than 50bps higher than they were a year ago. If the fiscal risk premium is lower after this budget due to a bigger fiscal buffer and the relative political stability compared to the last few months, then we should see UK gilts continue to outperform and yields continue to fall."

Brooks continued: "We do not think that this will mean a sharp decline in sterling. In recent days, GBP/USD and gilt yields have been moving in opposite directions. Thus, if yields are falling because of a reduced fiscal premium, this could boost the pound back to 1.35 highs vs, the USD."

Versus the dollar, the euro rose to USD1.1593 from USD1.1556 the prior day.

Minutes from the European Central Bank's latest meeting showed policymakers assessed inflation risks as "fairly balanced".

"Most members viewed the risks surrounding the inflation outlook as two-sided and saw the distribution of risks around the baseline as relatively unchanged since the previous meeting. The outlook for inflation continued to be more uncertain than usual on account of the still volatile global trade policy environment, which could precipitate simultaneous demand and supply shocks. Uncertainty was also likely to persist in view of elevated geopolitical risks, many of which appeared unlikely to be resolved in a lasting manner," according to the minutes.

At the October meeting, the ECB enacted a rate hold, keeping the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility unchanged at 2.00%, 2.15% and 2.40% respectively.

The minutes showed data since the September decision was in line with projections, with no "decisive" change in the balance of risks.

"Against this backdrop, there continued to be high option value in waiting for additional data," the ECB minutes said.

Versus the Swiss franc, the buck fell to CHF0.8054 from CHF0.8078. Against the yen, the dollar fell to JPY156.28 from JPY156.66.

Financial markets in the US are closed Thursday for Thanksgiving.

Naga analyst Frank Walbaum commented: "This dovish policy outlook could continue to weigh on both the dollar and US Treasury yields. Wednesday’s data offered mixed signals. Initial jobless claims unexpectedly declined, while continuing claims rose. Durable goods orders surprised to the upside. However, the improvement has not altered expectations for a more accommodative policy stance."

Versus the Australian dollar, the US currency fell to AUD1.5316 from AUD1.5411. Against the Canadian dollar, the greenback declined to CAD1.4043 from CAD1.4096.