Dollar pinned as Powell plods toward tapering By Reuters

By Tom Westbrook

SINGAPORE (Reuters) – The dollar loitered around multi-week lows on Monday in the wake of Federal Reserve Chair Jerome Powell laying out a slower-than-expected path to rate hikes, as traders’ focus shifted to U.S. jobs figures due on Friday for clues on a tapering timeline.

A storm lashing oilfields in the Gulf of Mexico also lent support to crude prices and to oil-exposed currencies, helping the Norwegian crown drift to a seven-week peak. [O/R]

The euro touched its highest since early August during Asia trade, at $1.1810, and the yen rose to its strongest since last Wednesday at 109.70 per dollar.

A holiday in Britain on Monday was expected to limit further moves in the London session.

The greenback has fallen since Powell said on Friday that tapering could begin this year but that it wouldn’t directly signal higher rates, as hiking would need the economy to pass a substantially more stringent test.

“Powell was vague on the timing of tapering, and his reiteration that it is separate from a decision to raise rates was read to imply that there’d be a gap,” ANZ analysts said in a note.

“That has, in turn, seen the market take a Goldilocks view of the Fed – stimulus will be reduced, but not so quickly as to snuff out the recovery.”

The dropped about 0.4% following his comments and was little changed on Monday at a two-week low of 92.595. The Australian dollar edged lower to $0.7304 and the dipped marginally to $0.7005. [AUD/]

For the month the dollar index has gained about 0.6%, while the kiwi and Norwegian crown have led G10 moves against the dollar, rising 0.5% and 1.4%, respectively, as New Zealand and Norway are likely to begin rate hikes within weeks.

Norges Bank plans a September hike while swaps markets are pricing an 80% chance that the Reserve Bank of New Zealand moves in October, after a COVID outbreak put an August hike on hold.

New Zealand on Monday extended a lockdown of its largest city, Auckland, by two weeks.

Purchasers’ Managing Index figures in China and the United States through the week, as well as European inflation data, will update the picture of the global economy as it faces headwinds from steadily climbing virus cases. However, U.S. labour data, due on Friday, will be the week’s main focus.

“Together with COVID trends, Friday’s U.S. non-farm payrolls will make or break the case for announcing tapering at the (Fed’s) September meeting,” said Commonwealth Bank of Australia (OTC:) analyst Kim Mundy.

“We consider another 800,000 jobs should be enough to announce tapering. We expect the dollar to regain some lost ground this week while market participants are still worried COVID will slow the world economy.”

The median forecast of 40 analysts polled by Reuters is for an increase of 728,000 jobs created in August, though as with previous months’…