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Dollar pares losses as Powell signals bond taper

Dollar pares losses as Powell signals bond taper

U.S. one dollar banknotes are seen in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration

NEW YORK : The dollar pared losses on Friday after Federal Reserve Chairman Jerome Powell said the U.S. central bank should begin reducing its asset purchases soon, but should not yet raise interest rates.

Powell said employment is still too low and high inflation will likely abate next year as pressures from the COVID-19 pandemic fade, even as many market participants are concerned that rising price pressures will last longer than policymakers believe.

Investors have taken profits since the dollar index hit a one-year high last week, when concerns that inflation will remain stubbornly high for longer led investors to bring forward expectations on when the Fed will first raise rates to mid-2022.

Now, “there’s a bit of a positioning unwind taking place, we’ve obviously seen a firmer dollar since the September Fed,” said Mazen Issa, senior foreign exchange strategist at TD Securities in New York. “That also dovetails with the seasonal tendency for the dollar to soften into the end of the month.”

The Fed said at its September meeting that it will likely begin reducing its monthly bond purchases as soon as November, and signaled interest rate increases may follow more quickly than expected.

The dollar index fell 0.10per cent to 93.64, and is down from a one-year high of 94.56 last week. The euro gained 0.09per cent to US$1.1636.

Data on Friday showed that U.S. business activity increased solidly in October, suggesting economic growth picked up at the start of the fourth quarter as COVID-19 infections subsided, though labor and raw material shortages held back manufacturing.

The dollar rally has also faded as investors build in expectations for sooner rate increases in other currencies.

Issa expects the dollar to regain traction, however, as global central banks push back against the aggressive repricing of rate hikes, while the Fed is likely to remain relatively hawkish and move forward with a reduction in its bond purchase program.

“Once we get the pushback from other central banks and the Fed’s committed to taper, we should see dollar dips really being shallow,” Issa said. The Aussie dollar, which is a proxy for risk appetite, gave up earlier gains and was last down 0.05per cent at US$0.7462.

The safe-haven yen gained, though it remains the weakest performer, having dropped by almost 10per cent this year. The dollar was last down 0.50per cent against the Japanese currency at 113.42 yen.

Bitcoin dropped 2.98 percent to US$60,367. The cryptocurrency set a record high of US$67,017 on Wednesday, after the launch of the first exchange-traded fund that buys U.S. bitcoin futures.

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Currency bid prices at 3:03PM (1903 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 93.6380 93.7410 -0.10per cent 4.064per cent +93.7890 +93.5340

Euro/Dollar US$1.1636 US$1.1625 +0.09per cent -4.76per cent +US$1.1656 +US$1.1621

Dollar/Yen 113.4200 114.0200 -0.50per cent +9.84per cent +114.2000 +113.4400

Euro/Yen 131.97 132.50 -0.40per cent +3.98per cent +132.7900 +131.9300

Dollar/Swiss 0.9162 0.9184 -0.24per cent +3.56per cent +0.9185 +0.9152

Sterling/Dollar US$1.3754 US$1.3792 -0.27per cent +0.68per cent +US$1.3815 +US$1.3736

Dollar/Canadian 1.2370 1.2371 +0.00per cent -2.85per cent +1.2390 +1.2321

Aussie/Dollar US$0.7462 US$0.7466 -0.05per cent -2.99per cent +US$0.7512 +US$0.7454

Euro/Swiss 1.0660 1.0673 -0.12per cent -1.36per cent +1.0682 +1.0659

Euro/Sterling 0.8458 0.8423 +0.42per cent -5.36per cent +0.8468 +0.8422

NZ US$0.7142 US$0.7157 -0.17per cent -0.51per cent +US$0.7188 +US$0.7133

Dollar/Dollar

Dollar/Norway 8.3595 8.3690 -0.14per cent -2.68per cent +8.3790 +8.3235

Euro/Norway 9.7295 9.7145 +0.15per cent -7.05per cent +9.7452 +9.6890

Dollar/Sweden 8.5751 8.6029 -0.19per cent +4.62per cent +8.6145 +8.5615

Euro/Sweden 9.9781 9.9973 -0.19per cent -0.98per cent +10.0050 +9.9712

(Reporting by Karen Brettell; Editing by Susan Fenton and Jonathan Oatis)

Source: Reuters/ga

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