FOREX-Dollar gains as investors turn risk-averse, central bank decisions up next

By Gregor Stuart Hunter and Amanda Cooper

SINGAPORE/LONDON, Feb 5 (Reuters) - The dollar climbed to a two-week high on Thursday as fresh volatility gripped stocks and precious metals, while traders counted down to rate decisions from the European Central Bank and the Bank of England.

The dollar index =USD, which measures the U.S. currency's performance against a basket of six others, was last up 0.14% at 97.82, up for a second day.

"There’s a bit of risk aversion coming through," said Sim Moh Siong, currency strategist at OCBC in Singapore. "When there's risk aversion, the dollar tends to strengthen."

The dollar has regained some strength this week and stocks turned risk-off as financial markets assess U.S. corporate earnings season, now halfway complete.

Gold and silver, which have become more volatile recently as a result of leveraged buying and speculative flows, were rocked by a fresh selloff on Thursday, which saw silver falling as much as 16.6% to a low of $73.41.

The Nasdaq Composite has fallen 2.9% during the past two days, its biggest slide since October, with volatility triggered by market bellwethers including Google parent Alphabet GOOGL.O, which reported aggressive spending plans on Wednesday, and a rout in software stocks as they adapt to a new era of generative AI.

ECB, DEAD AHEAD

The euro EUR= was last down 0.2% at $1.1790 ahead of the ECB decision, where it is expected to keep rates on hold. Investors' attention will be focused on the post-policy press conference to gauge the outlook for rates over the coming months.

Right now, markets show traders are attaching very little chance of a rate cut this year. Even with the volatility that has dominated markets since the start of the year, the euro is only some 0.4% above where it was when the ECB last met in December.

However, the euro is some 13% higher against the dollar than it was a year ago, which has added to some concern among policymakers about the impact on regional price pressures, while inflation in the euro zone has fallen to around 1.7%, below the ECB's target of 2%.

"We expect the ECB to leave their policy rate on hold through 2026, but judge that there is a higher risk of another cut than a hike given inflation is likely to undershoot their target," MUFG currency strategist Lee Hardman said.

The pound GBP=, meanwhile, was down 0.5% at $1.358 ahead of the BoE's policy decision, at which it is also expected to remain on hold.

Late on Wednesday, Federal Reserve Governor Lisa Cook said in a speech she is more concerned about stalled progress on inflation than a weakening labour market, a strong signal that she will not support another interest-rate cut until tariff-induced price pressures begin to recede.

Fed funds futures are pricing an implied 88% probability that the U.S. central bank will hold rates at its next two-day meeting ending on March 18, though bets on a rate cut edged up to 12% from 9.4% a day earlier, according to the CME Group's FedWatch tool.

Against the yen JPY=, the dollar rose 0.14% on the day to 157.11 yen. The threat of joint U.S.-Japanese official buying to counter yen weakness on January 23 pushed the dollar to a three-month low of 152.1. As nerves have built ahead of Sunday's election, it has risen by around 3%, having recovered roughly three quarters of that initial slide.

Against the offshore yuan CNH=, the dollar was last flat at 6.9439 yuan following a phone call between U.S. President Donald Trump and Chinese counterpart Xi Jinping in which they discussed trade, security issues and U.S. arms sales to Taiwan.

Cryptocurrencies extended losses, hitting their lowest since November 2024. Bitcoin BTC= fell as much as 3.54% to $70,052.48 at one point and was last down 1.7% at $71,720. Ether ETH= was steady around $2,135, having recovered from an overnight low of $2,068.