March 20 (Reuters) - The dollar index advanced on Thursday due to monthly hedging flows and haven-related purchases, driven by a decline in risk appetite after this week's central bank meetings. The Bank of England joined other central banks in highlighting significant economic uncertainty and worries about ongoing high inflation. Treasury yields trimmed earlier losses as new data on jobless claims, the Philadelphia Fed survey, and home sales indicated that U.S. growth was not deteriorating sharply. Nonetheless, anticipation of future Fed cuts makes dollar bulls reluctant to establish long positions, as decreased government spending and tariffs are projected to slow growth.
GBP/USD remained lower after Bank of England policy makers, in an 8 to 1 vote, held interest rates at 4.5% and warned against the expectation that interest rates would be reduced in the coming meetings. Bank of England Governor Andrew Bailey said the central bank would have to be prudent about cutting rates because the fall in inflation has been very gradual.
Policymakers will have to account for expected government spending cuts once finance minister Rachel Reeves' gives her budget update next Wednesday.
Futures data suggests long positions have likely been trimmed as cable flirted with 1.30. Further weakness would see the pound test support at the 1.2901 March 5 high and rising 21-day moving average at 1.2822, whereas a move above the 1.3046 November 6 high hints at an inverse head and shoulders continuation to 1.34.
EUR/USD declined for the second day, mirroring the DAX's weakness as optimism regarding German spending shifted to concerns about U.S. tariffs and ongoing fighting in Ukraine. European Central Bank President Christine Lagarde said a 25% U.S. tariff on European imports and EU retaliatory measures would lower euro zone growth about half a percentage point in the first year. She stressed, however, that any estimates of the cost of a trade war were subject to considerable uncertainty.
EUR/USD is declining from an overbought position, with the descent moderating as it approaches the 1.08 level. This level represents the base of a bullish flag pattern and coincides with the expiration of EUR1.5 billion in options on Friday. Further corrective losses will see EUR/USD revisit its 200-day moving average at 1.0724, while a move above the March high of 1.0954 is bullish. The Swiss franc weakened after the Swiss National Bank cut its main interest rate to 0.25%, while Sweden's central bank kept its policy rate at 2.25%. SNB Chairman Martin Schlegel said the bank will continue to use foreign currency market interventions if necessary.
USD/JPY reversed its loss, tracking Treasury yield movements after U.S. data pointed to stable growth. The pair needs to eclipse 149 to challenge newly established short positions after Wednesday's Fed. The session low is just above a bear reversal high set on March 11 at 148.12.
Tokyo will eye nationwide CPI for February on Friday while Sydney traders digest Australian trade data. Bank of Canada Governor Tiff Macklem said that uncertainty over the effect of U.S. tariffs meant the bank had to change the way it conducted monetary policy to become less-forward looking than normal. There are $4 billion of 1.4280-1.4300 USD/CAD options expiring Friday, and the pair held above that range in trade in Thursday.
Treasury yields were down 1 to 2 basis points. The 2s-10s curve was up about 1 basis points to +27.6bp.
The S&P 500 rose 0.40% due to tech weakness. Oil rose 1.7% after OPEC+ issued a new production schedule.
Gold and copper were little changed on the session.
Heading toward the close: EUR/USD -0.48%, USD/JPY +0.07%, GBP/USD -0.32%, AUD/USD -0.88%, =USD +0.44%, EUR/JPY -0.39%, GBP/JPY -0.21%, AUD/JPY -0.79%.(Editing by Burton Frierson Reporting by Robert Fullem)
