FOREX-Dollar firms as markets await ECB, BoJ rate announcements, pound higher after BoE

(Updates after BoE decision)

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Markets look for catalysts from key central bank decisions

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BoE cuts rates in tight 5-4 vote

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Trump says next Fed chair to favour lower rates 'by a lot'

By Rocky Swift and Samuel Indyk

LONDON, Dec 18 (Reuters) - The dollar inched higher against its major counterparts on Thursday as markets awaited key rate decisions from Europe and Japan, while sterling turned higher as a deeply-divided Bank of England cut rates.

Sterling rose despite the BoE's rate cut as Governor Andrew Bailey, who voted to lower borrowing costs this time, cautioned about further rate cuts. The dollar largely took in its stride comments from U.S. President Donald Trump that the next head of the Federal Reserve would believe in lower interest rates "by a lot".

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was up 0.2% at 98.55 after advancing 0.2% in the previous session.

The yen dipped 0.1% to 155.85, extending a 0.6% slide on Wednesday.

The euro was down 0.2% at $1.1718, while sterling reversed some of Wednesday's decline after soft inflation figures to trade 0.1% higher at $1.3383.

CENTRAL BANK BONANZA

The BoE's rate cut was its fourth this year, but markets pushed back their expectations for further easing, with the next cut not fully priced until June, from April prior to the decision.

"The market will likely see the decision as hawkish because median voter Governor Bailey's comments were less dovish while the minutes of today's meeting signal that the Committee will take their time before cutting again," said Rob Wood, chief UK economist at Pantheon Macroeconomics. In contrast to the BoE, the European Central Bank is widely expected to hold rates steady and signal little appetite for cuts in the near term.

"We don't expect any new policy signals from the ECB and we have a hard time seeing that the ECB will hike rates in 2026, or even 2027," said Danske Bank analyst Mohamad Al-Saraf.

The Swedish and Norwegian central banks both kept their main interest rates on hold, in line with expectations. The Swedish crown was little changed at 10.904 per euro, while Norway's crown was a touch stronger at 11.958 per euro. In Asia, the BOJ looks almost certain to raise short-term interest rates on Friday to 0.75% from 0.5% as high food costs keep inflation above the central bank's 2% target.

The BOJ may raise rates twice in 2026 to contend with persistent, real negative interest rates, according to Vincent Chung, a Hong Kong-based fixed-income portfolio manager at T Rowe Price.

"There are some expectations that BOJ would not be hawkish in forward guidance and lead to some weakness in the yen, but we believe that this would be temporary," Chung said.

In the U.S., uncertainty remains on when the Fed might cut rates again and whether the central bank can maintain its independence as Trump muses about possible successors to Fed Chair Jerome Powell, whose term ends in May. Fed Governor Christopher Waller said on Wednesday the central bank still had room to cut interest rates amid rising job market weakness. That was in contrast to commentary by Atlanta Federal Reserve President Raphael Bostic, who said on Tuesday that he did not think that the Fed's decision to cut rates last week was warranted.

Trump, who wants to be consulted on Fed decisions, said at a broadcast from the White House that he would soon announce his pick to replace Powell.

"I'll soon announce our next chairman of the Federal Reserve, someone who believes in lower interest rates, by a lot, and mortgage payments will be coming down even further," Trump said. All of the known contenders - White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh and Waller - argue interest rates should be lower than they are now, though none has indicated policy should be as low as suggested by Trump. (Reporting by Samuel Indyk in London, Rocky Swift in Tokyo, Ankur Banerjee in Singapore Editing by Kate Mayberry, Kirsten Donovan)