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Dollar slips after Powell embraces tapering, holds on rate hikes

EconomyAug 27, 2021 03:31PM ET
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© Reuters. FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

By Herbert Lash

NEW YORK (Reuters) -The dollar slid on Friday after Federal Reserve Chair Jerome Powell indicated in a highly anticipated speech that the U.S. central bank could start tapering its massive support to the economy could start by year's end, which was not as fast as many in the market had assumed.

Powell said there had been clear progress toward maximum employment and he believed that if the U.S. economy improved as anticipated, "it could be appropriate to start reducing the pace of asset purchases this year."

But Powell told the Fed's annual Jackson Hole symposium the timing and pace of tapering should not be construed as a signal for when interest rates will begin to rise. The speech showed Powell has not adopted the hawkish stance of some Fed officials, said Gregory Anderson, global head of FX strategy at BMO Capital Markets.

"It's pretty clear that if you were worried about the timeline, that we announce in September that we're going to taper starting Oct. 1, that's not there in this speech," Anderson said.

"It's not as bad as feared based on the most extreme of the hawks," he added.

The dollar index, which measures the greenback's performance against a basket of six major currencies, fell 0.39% to 92.6760.

The euro rose 0.37% to $1.1794, while the yen fell 0.24% at $109.8200.

After minutes of the Fed's policy-setting meeting in July were released last week, the dollar advanced because most market participants anticipated tapering to begin this year.

Powell was clear to detach tapering from "the rate liftoff," or raising interest rates, said David Petrosinelli, senior trader at Insperex in New York. "He was very clear to delineate that."

The dollar fell as market participants sharply lowered expectations for the Fed’s long-term tightening trajectory, said Karl Schamotta, director Of global product and market strategy at Cambridge Global Payments (NYSE:GPN) in Toronto.

The dollar began to retreat about 15 minutes before Powell spoke, after James Bullard, president of the St. Louis Fed, reiterated his hawkish view that tapering should begin soon and end by next year's first quarter. [nS0N2O301G}

Benchmark 10-year Treasury yields fell 3.4 basis points to trade at 1.3104%. On Thursday yields jumped to 1.375%, the highest since Aug. 12.

The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced that a lockdown against COVID-19 in Auckland is likely to remain in place for another two weeks.

The Swedish crown was flat at 8.7070 after mixed economic data.

The Canadian dollar rose 0.56% to 1.2612 versus the U.S. dollar. Brent futures, the international benchmark for crude, rose $1.63 to settle at $72.70 a barrel and gained 11.5% for the week.

Marc Chandler, managing director at BK Asset Management, said the Canadian currency generally takes its cues from oil, risk with the S&P 500 as a proxy and interest rate differentials.

"The Canadian dollar's strength today is a reflection not so much of Canada, but what's happening in the U.S. and the market takeaway from Powell's speech," Chandler said.

========================================================

Currency bid prices at 3:02PM (1902 GMT)

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

Close Change

Previous

Session

Dollar index 92.6760 93.0530 -0.39% 2.995% +93.1830 +92.6280

Euro/Dollar $1.1794 $1.1751 +0.37% -3.46% +$1.1802 +$1.1735

Dollar/Yen 109.8200 110.0850 -0.24% +6.29% +110.2600 +109.7950

Euro/Yen 129.52 129.36 +0.12% +2.05% +129.7400 +129.1600

Dollar/Swiss 0.9115 0.9180 -0.71% +3.02% +0.9199 +0.9107

Sterling/Doll $1.3768 $1.3703 +0.49% +0.78% +$1.3781 +$1.3679

ar

Dollar/Canadi 1.2619 1.2685 -0.51% -0.90% +1.2708 +1.2607

an

Aussie/Dollar $0.7311 $0.7238 +1.02% -4.96% +$0.7317 +$0.7222

Euro/Swiss 1.0748 1.0786 -0.35% -0.55% +1.0797 +1.0747

Euro/Sterling 0.8564 0.8578 -0.16% -4.17% +0.8589 +0.8560

NZ $0.7010 $0.6948 +0.92% -2.35% +$0.7018 +$0.6934

Dollar/Dollar

Dollar/Norway 8.7165 8.8425 -1.46% +1.47% +8.8700 +8.7130

Euro/Norway 10.2828 10.3893 -1.03% -1.76% +10.4216 +10.2798

Dollar/Sweden 8.6398 8.7040 -0.39% +5.41% +8.7219 +8.6341

Euro/Sweden 10.1910 10.2314 -0.39% +1.14% +10.2517 +10.1860

Dollar slips after Powell embraces tapering, holds on rate hikes
 

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Comments (8)
hamid reza binandeh
hamid reza binandeh Aug 28, 2021 12:12AM ET
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okey
Iyarin Boonnum
Iyarin Boonnum Aug 26, 2021 11:54PM ET
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Huge tapering will come coz super high inflation is destroying us economy
me ish
me ish Aug 26, 2021 11:54PM ET
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it's too little, too late - remember the FED wants very high inflation - it's the only way they can help the government to reduce its vast debts, that under normal circumstances could never be paid off in 1000 years - so they're going to deliberately decimate the value of the USD. Any talk otherwise, is just to attempt to fool the markets and to keep those countries holding US Treasuries for as long as possible, before they give in and sell up - as China and Japan have been doing recently.
Lumber Jack
Lumber Jack Aug 26, 2021 11:44PM ET
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why but kaplan speech? hes keep changing his opinion, wait for powell because hes the one who know about economic balancing, not like the others who screaming and grieving for a taper, and powell already said before taper is bot an easy tak, need to look in every perspective. kaplan is a joker.
Nordin Mohamad
Nordin Mohamad Aug 26, 2021 11:44PM ET
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some are paid to make a news for the payer advantage ...
Options Trader
Options Trader Aug 26, 2021 11:27PM ET
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Every news channel is completely obsessed with the fed. I really dont think it matters.
abeeb babatunde
abeeb babatunde Aug 26, 2021 11:27PM ET
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that's a vague thought from your end. they matter
Justin McNaughton
Justin McNaughton Aug 26, 2021 10:29PM ET
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the market will surprised tomorrow. down 3-5% by close.
Lumber Jack
Lumber Jack Aug 26, 2021 10:29PM ET
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lol
Buy and Hold
Buy and Hold Aug 26, 2021 10:29PM ET
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then sell your house and short
Joel Schwartz
Joel Schwartz Aug 26, 2021 9:48PM ET
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How is it an “early taper” when the FED’s asset sheet 1-yr chart is just a 45 degree angle up? The FED is out of control with regards to inflation.
Jose Sousa
Jose Sousa Aug 26, 2021 9:48PM ET
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And will deflect blame to Covid. The crimex go unpunished.
Lumber Jack
Lumber Jack Aug 26, 2021 9:48PM ET
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powell already said that tapering is not an easy task, need to look in every perspective.
Lumber Jack
Lumber Jack Aug 26, 2021 9:23PM ET
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ah another manipulator from fed. powell will say the truth after.
Eric Asabil
Eric Asabil Aug 26, 2021 9:22PM ET
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