Fed's dovish policy force dollar go down, pound paused over Brexit

The dollar held near two-week lows on Thursday as Federal Reserve minutes reinforced dovish policy expectations while the pound held recent ranges after European leaders extended the deadline for Britain to leave the union, averting a no-deal Brexit. Currency markets are also awaiting a blast of economic data from the world's second-largest economy with March Chinese trade figures due on Friday and first quarter gross domestic product due next week.

The U.S. dollar lacked momentum, with its index against six other currencies hovering near a two-week low, after the minutes from the Fed's last meeting enhancing expectations of a dovish policy stance. The British pound traded at $1.3095, unchanged on the day and staying in a triangle holding pattern between $1.2945 and $1.3380 during the past month or so.

The EU kicked the can on Brexit down the road for the second time in less than a month, making sure Britain will not crash out of the bloc on Friday, a scenario that many market players have been expecting. Still, the decision did little to boost clarity on exactly how, when, or even if at all, the UK will leave the EU, keeping the pound in check.

The dollar index last stood at 96.900, having slipped to a two-week low of 96.823 on Wednesday. The minutes from the Fed's March 19-20 policy meeting confirmed the central bank is likely to leave interest rates unchanged this year.

U.S. central bankers also debated possible policy moves the Fed could make after it ended its balance sheet reduction programme by September, with some advocating purchases of U.S. Treasury securities at that point. "Some people say the minutes contained few surprises but a close look suggests the Fed is likely to become more dovish as time goes by," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The U.S. consumer price data released on Wednesday also painted a mixed picture, with annual core CPI inflation slipping to 2.0 percent in March, the smallest increase since February 2018. The dollar slipped to 110.95 yen, having fallen 0.68 percent so far this week.

The dollar also quickly lost its gain against the euro made after European Central Bank Mario Draghi underscored the risks facing the euro zone economy. The ECB left its ultra-easy stance unchanged as expected on Wednesday and Draghi said economic data is weak.

He also confirmed the ECB was considering if measures were needed to mitigate the impact on banks of its negative deposit rates as well as the pricing of new cheap two-year loans to banks. The euro last held at $1.1276, recovering from Wednesday's low of $1.22295, keeping intact its slow uptrend from $1.1183 touched on April 2.

It is up 0.52 percent so far, which will be its first weekly gains in four weeks if sustained. The Australian dollar stood at $0.7169, having hit a six-week high of $0.7175 as concerns about slowdown in China ease. 

(With inputs from agencies.)