Dollar falls to 10-day low as rally pauses; riskier currencies rebound

© Reuters. FILE PHOTO: U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021. REUTERS/Dado Ruvic/Illustration

By Elizabeth Howcroft

LONDON (Reuters) - The dollar edged down against major peers on Thursday, reaching its lowest level in 10 days in a pullback from its recent rally, while the Australian and New Zealand dollars rose.

Expectations that the U.S. Federal Reserve would tighten monetary policy more quickly than previously expected have helped the dollar rise since early September.

But its ascent has recently eased and on Thursday it was on track for its second biggest two-day drop so far this year, even after minutes of the Fed's September meeting confirmed tapering of stimulus is likely to start this year.

"It seems to be a classic case of buy the rumour, sell the fact type mentality," said Neil Jones, head of FX sales at Mizuho.

"The Fed confirmed the expectations of many investors, I would suggest, holding long dollar positions."

"It's just been a situation of liquidating dollar longs - profit-taking of long dollar positions because (Fed tightening) is now somewhat factored into the price."

At 0913 GMT, the dollar index was down 0.2% on the day at 93.794, its lowest since Oct 4. On Tuesday, it had reached a one-year high at 94.563.

The euro was up 0.2% at $1.1619, a nine-day high.

A Labor Department report showed U.S. consumer prices rose solidly in September, and they are likely to rise further amid a surge in energy prices, potentially pressuring the Fed to act sooner to normalise policy.

The Fed's September meeting minutes also showed that a growing number of policymakers were worried that high inflation could persist.

"My expectation is that this dollar weakness will not last and we got back into a longer-term bull trend," Mizuho's Jones said.

U.S. initial jobless claims and PPI data are due later in the day.

"Today's US PPI data should be a reminder that the Fed needs to become more vigilant about inflation," wrote ING strategists in a note to clients.

Swedish inflation picked up to its highest level since 2008 in September, prompting the Swedish crown to extend gains and reach its highest in eight months versus the euro.

At 0914 GMT, the euro was down 0.5% against the Swedish crown at 10.0175.

The Norwegian crown also strengthened, with the euro down 0.6% against the Nokkie at 9.7828.

Simon Harvey, senior FX analyst at Monex Europe, said that the Swedish crown's jump was mostly part of the day's rebound in riskier currencies, but that the inflation data contributed to the move.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was up 0.5% versus the dollar at $0.74175. The currency brushed off data showing a drop in jobs numbers, with investors betting on a quick recovery since lockdown measures have eased.

The New Zealand dollar also rose, up 0.8% at $0.70245, its highest in two-and-a-half weeks.

The Swiss franc was up around 0.2% against the euro. Around 0600 GMT, it reached its highest in 11 months versus the euro, a move which Mizuho's Jones said could be due to a combination of risk-aversion in global markets and more broad-based euro weakness.

Turkey's lira pared losses, pulling back from the record low it touched overnight after President Tayyip Erdogan dismissed three members of the central bank's monetary policy committee.

Elsewhere, the cryptocurrency bitcoin was at around $57,622. Earlier in the session it hit a five-month high of $58,550.

A collapse in cryptocurrencies is a "plausible scenario" and rules are needed to regulate the fast-growing sector as a "matter of urgency", Bank of England Deputy Governor Jon Cunliffe said on Wednesday.