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Dollar falls as some central banks outside U.S. hold rates steady

By Kate Duguid and Richard Leong
Illustration photo of U.S. Dollar and Euro notes

By Kate Duguid and Richard Leong

NEW YORK (Reuters) - The dollar fell against most major currencies on Thursday as some central banks refrained from cutting interest rates after the Federal Reserve's second rate decrease this year, boosting the appeal of their currencies versus the greenback.

Sterling rallied in late U.S. trading following comments from European Commission President Jean-Claude Juncker which raised hopes for a deal for Britain to leave the European Union.

The Swiss National Bank, the Bank of England and the Bank of Japan all kept their policies on hold on Thursday. Norges Bank increased its key policy rate, moving its rates in the opposite direction of Europe and the United States.

These central banks are generally "kind of holding their breath and holding their fire in terms of fully acknowledging that further easing could come down the road but not moving in a proactive way towards additional easing," said Brian Daingerfield, head of G10 FX strategy at NatWest Securities in Stamford, Connecticut.

On Wednesday, the Fed as expected cut interest rates by a quarter point to support a record-long economic expansion but signaled a higher bar for further reductions in borrowing costs amid a favorable economic outlook.

On the other hand, the Organization for Economic Co-Operation and Development (OECD) on Thursday cut its global economic growth forecasts for 2019 and 2020. U.S. gross domestic product is expected to rise 2.4% this year, down from a forecast 2.8% growth in May, the group said.

In late U.S. trading, the euro was up 0.19% at $1.1051, while the greenback was 0.42% lower at 107.99 yen.

The dollar shed 0.53% at 0.99235 Swiss franc, and declined 0.32% to C$1.3254.

The greenback fell to a five-week low at 8.9688 Norwegian crown <NOK> before erasing its earlier losses.

Some analysts also attributed lower demand for the greenback as stress in U.S. money markets has subsided with the Fed injecting over $200 billion in temporary cash into the banking system since Tuesday.

"The shortage of dollars has eased somewhat. With a possible crisis averted, you have people moving back into other currencies," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

Meanwhile, the British pound posted a late lift after Juncker said "I think we can have a deal" if the Irish border backstop, which the British government wants removed, could be replaced with alternatives.

Following Juncker's comments, sterling <GBP=D3> hit $1.256, its highest since July 15 and $88.04 pence per euro, a level not seen since late May.


(Reporting by Richard Leong, Kate Duguid in NEW YORK; Additional reporting by Tommy Wilkes, Saikat Chatterjee in LONDON; Editing by Rosalba O'Brien and Chris Reese)