SYDNEY The yen, euro and sterling all struggled on Thursday with the pound hitting a 2-1/2 year trough as markets positioned for more stimulus from the Bank of England, and waited for the outcomes of the Bank of Japan and European Central Bank meetings.
Given the event risk surrounding the three central bank events, investors turned to the U.S. dollar, further encouraged by data showing U.S. private employers added a larger-than-expected 198,000 jobs in February.
The report bolstered hopes that Friday's U.S. non-farm payrolls will surprise on the upside and helped drive the dollar to six-month highs against a currency basket.
The dollar index .DXY touched 82.604, its highest since August 20. It has rallied more than 4 percent from this year's trough of 78.918 plumbed on February 1.
Against the yen, the greenback briefly popped above 94.00 after buy-stops were triggered, moving ever closer to a 33-month peak of 94.77 reached last week. It was last at 93.98.
The firmer dollar saw sterling fall to $1.4965, easily surpassing the previous trough of $1.4985. The euro plumbed a six-week low around $1.2965, bringing into sight the December trough of $1.2876.
Commodity currencies lost some of their shine against the greenback, with the Aussie dollar back below $1.0300. It last traded at $1.0237, having fallen from a 1-1/2 week high of $1.0303. Yet it made gains on sterling, the yen and euro, with the pound testing one-year lows.
Its Canadian counterpart flirted with eight-month lows on the greenback after the Bank of Canada softened its stance on the need for tighter policy. The U.S. dollar bought C$1.0321, having risen as high as C$1.0337.
Among the three central banks, the BOE is seen most likely to add more stimulus to the economy having faced a drip-feed of dismal economic data recently. A growing number of economists reckon another 25 billion pounds of government bond buying is in the offing.
"Given that three MPC members voted in favor of Quantitative Easing last month, we believe the majority will opt for a moderate 25-billion-pound balance sheet expansion, which would put sterling under further pressure," said Vassili Serebriakov, strategist at BNP Paribas.
The ECB, which meets in Frankfurt against a backdrop of political deadlock in Italy, is expected to hold fire for now, but perhaps open the way to looser policy in the future.
"While our base case remains for policy to be unchanged and little news from the press conference, the risks are skewed to the downside for the euro. (ECB President Mario) Draghi is likely to maintain a slightly more dovish tone compared with February," analysts at Barclays Capital wrote in a client note.
Analysts expect no action from the BOJ until after a new governor is installed in coming weeks. Markets see fresh stimulus measures at the next meeting in early April.
Anticipation of aggressive easing from the BOJ has made the yen the worst performer among major currencies this year. The dollar has risen about 8 percent so far this year, while the euro is up nearly 7 percent.
(Editing by Wayne Cole)