Dollar firm on cautious risk mood, euro looks to key ECB decision

© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

By Hideyuki Sano

TOKYO (Reuters) - The dollar was supported on Thursday by cautious risk sentiment stemming in part from worries about the Delta variant while the euro looked to the European Central Bank policy decision later in the day.

The dollar index stood at 92.712, having risen for the third consecutive day on Wednesday as U.S. stocks stepped back with their high valuation undermined by doubts about the strength of the economic recovery.

Risk sentiment did get a small boost after influential New York Fed Bank President John Williams said late on Wednesday that more progress is needed in the labour market before reducing its stimulus.

Yet, his comments were hardly a surprise to anyone after surprisingly soft U.S. payroll figures published on Friday have effectively ruled out any chance of the Fed's tapering this month.

The European Central Bank on the other hand is expected to claw back stimulus on Thursday, taking a token step towards unwinding the emergency economic aid it put in place during the pandemic.

Analysts polled by Reuters see buying under pandemic emergency purchase programme (PEPP) falling possibly as low as 60 billion euros a month from the current 80 billion, before a further fall early next year and the scheme's end in March.

But at the same time, the ECB is expected to signal copious support for years to come, even after PEPP expires.

"If the ECB board is going to discuss reducing its bond purchase under PEPP, it will make sure that it will continue with its conventional asset purchase programme," said Daisuke Uno, chief strategist at Sumitomo Mitsui (NYSE:SMFG) Bank.

"So it is likely to be a policy change with a caveat. The euro may end up getting little boost in the end."

The common currency slipped to $1.1819, extending its retreat from Friday's two-month high of $1.1909. Sterling likewise eased to $1.3773 after having peaked at $1.38905.

The yen was little moved at 110.24 to the dollar while the Australian dollar slipped to $0.7368.

The Canadian dollar changed hands at C$1.2693 per U.S. dollar, having fallen to its lowest since Aug. 23.

The Bank of Canada left its key interest rate at a record low 0.25% and maintained its current quantitative easing program on Wednesday.

The Chinese yuan stood at 6.457 per dollar ahead of China's inflation data later in the day.

A firmer dollar also pressured many emerging market currencies, with the Brazilian real and the Turkish lira among the worst hit.

The real tumbled almost 3% on Wednesday to 5.3214 per dollar on heightened political worries as President Jair Bolsonaro slammed the country's Supreme Court, encouraging people to disobey its rulings.

The lira lost 1.4% to 8.468 to the dollar after Turkish Central Bank Governor Sahap Kavcioglu said on Wednesday the current 19% policy rate is tight enough to bring inflation down.

Elsewhere, Bitcoin remained shaky after Tuesday's 11% dive.

It faces new challenges as the U.S. financial watchdog warned major cryptocurrency exchange operator Coinbase (NASDAQ:COIN) that it would sue if it goes ahead with the launch of its interest-bearing "Lend" product for crypto assets.

The coin last stood at $46,650 while ether changed hands at $3,480.