FOREX-Dollar pares losses as Powell signals bond taper

(Recasts with comments from Fed’s Powell, adds data, Bitcoin
price, updates prices)
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Karen Brettell
NEW YORK, Oct 22 (Reuters) – 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 0.10% to 93.64, and is down
from a one-year high of 94.56 last week. The euro
gained 0.09% to $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 0.05% at
$0.7462.
The safe-haven yen gained, though it remains the weakest
performer, having dropped by almost 10% this year. The dollar
was last down 0.50% against the Japanese currency at
113.42 yen.
Bitcoin dropped 2.98 percent to $60,367. The
cryptocurrency set a record high of $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 -0.10% 4.064% +93.7890 +93.5340
Euro/Dollar $1.1636 $1.1625 +0.09% -4.76% +$1.1656 +$1.1621
Dollar/Yen 113.4200 114.0200 -0.50% +9.84% +114.2000 +113.4400
Euro/Yen 131.97 132.50 -0.40% +3.98% +132.7900 +131.9300
Dollar/Swiss 0.9162 0.9184 -0.24% +3.56% +0.9185 +0.9152
Sterling/Dollar $1.3754 $1.3792 -0.27% +0.68% +$1.3815 +$1.3736
Dollar/Canadian 1.2370 1.2371 +0.00% -2.85% +1.2390 +1.2321
Aussie/Dollar $0.7462 $0.7466 -0.05% -2.99% +$0.7512 +$0.7454
Euro/Swiss 1.0660 1.0673 -0.12% -1.36% +1.0682 +1.0659
Euro/Sterling 0.8458 0.8423 +0.42% -5.36% +0.8468 +0.8422
NZ $0.7142 $0.7157 -0.17% -0.51% +$0.7188 +$0.7133
Dollar/Dollar
Dollar/Norway 8.3595 8.3690 -0.14% -2.68% +8.3790 +8.3235
Euro/Norway 9.7295 9.7145 +0.15% -7.05% +9.7452 +9.6890
Dollar/Sweden 8.5751 8.6029 -0.19% +4.62% +8.6145 +8.5615
Euro/Sweden 9.9781 9.9973 -0.19% -0.98% +10.0050 +9.9712

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