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FOREX-Fed-fuelled dollar forces rival currencies onto back foot

Fri, 18th Jun 2021 12:31

* Fed's hawkish shift has dollar up 1.6% this week

* ECB, BOJ seen behind the Fed's tapering curve

* Graphic: World FX rates

By Julien Ponthus

LONDON, June 18 (Reuters) - The dollar was headed for its
best week in nearly nine months on Friday, with rival currencies
struggling to shake the pressure exerted by the Federal
Reserve's hawkish shift in tone.

With investors pricing in a sooner-than-expected tapering of
extraordinary U.S. monetary stimulus, the euro and the yen
failed to recoup losses made during the last two days.

Hovering above $1.19, the euro was just 0.05% higher against
the dollar and on course for its worse week since October with a
1.6% fall.

With a dovish European Central Bank seemingly far behind the
Fed in the monetary policy cycle, traders will be reluctant to
buy euros against dollars.

"The U.S. central bank is one step ahead and as a result USD
is likely to remain well supported against the EUR," Commerzbank
strategists said in their daily note.

"As no important data is due for publication today or at the
start of next week, the FX market is likely to feel mainly the
after-effects of the Fed meeting," they added.

With investors busy closing short positions since the Fed
meeting, the dollar index hit a more than two-month high
of 92.071, and is on track for a 1.6% weekly gain, its largest
since September.

At 1104 GMT, the dollar index was up 0.05% at 91.915.

The greenback is also on track for a weekly 0.4% rise
against the yen, which sat at 110.11 per dollar after
hitting an 11-week low of 110.82.

It was little moved by the Bank of Japan keeping its main
policy settings steady, as expected.

The Swiss franc was also on course to lose about 2.3%
against the dollar this week after the Swiss National Bank
signalled on Thursday that monetary policy would stay
ultra-loose for the foreseeable future.

Sterling fell 0.2% to $1.3899 and was headed for a
weekly loss of 1.5% while fresh data showed an unexpected fall
in Britain's retail sales.

Versus the euro, it was down around 0.2% at 85.69 pence per
euro, on track for a small weekly fall.

The Australian dollar struck its lowest since December at
$0.7508 and the Kiwi fell to its weakest since April at
$0.6982, defying eye-popping reports on Australian jobs
and New Zealand growth this week.

In the world of crypto currencies, bitcoin failed to get a
lift from the news that Spanish bank BBVA would open a
bitcoin trading service to all private banking clients in
Switzerland. Bitcoin was down 0.5% at $37,879.

The shakeout on foreign exchanges has been triggered by Fed
forecasts, or 'dot plots,' showing 13 of the 18-person policy
board saw rates rising in 2023, versus only six previously, with
the median board member tipping two hikes in 2023.

While the plots are not commitments and have a poor track
record of predicting rates, the shift to bring rate hike
expectations forward was a shock that has also reverberated
through the bond market and metal prices.

(Reporting by Julien Ponthus and Tom Westbrook; Editing by
Catherine Evans)

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