Dollar rally pauses as risk appetite improves

© 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 John McCrank and Elizabeth Howcroft

NEW YORK (Reuters) -The dollar edged down against major peers on Thursday, touching a 10-day low as rising risk appetite put a brake on the safe-haven currency's recent rally, while the Aussie and Kiwi dollars gained.

Expectations that the U.S. Federal Reserve would tighten monetary policy more quickly than previously expected amid an improving economy and surging inflation had fuelled a rise in the greenback since early September.

But the dollar reversed course on Wednesday, even after data showed that pricing pressures were still hitting U.S. consumers and the minutes of the Fed's September meeting confirmed the tapering of stimulus is likely to start this year.

"It's been a bit of buy the rumour sell the fact," said Vassili Serebriakov, FX and macro strategist at UBS.

"The market was quite long dollars and I think we're seeing a little bit of a pullback just based on the market pulling back some of the dollar bullishness," he said.

At 10:30 a.m. Eastern time, the dollar index was down 0.036% at 93.982, having touched its lowest level since Oct 4. earlier in the session. On Tuesday, it had reached a one-year high of 94.563.

The euro was nearly flat against the greenback, at $1.1593, having hit a nine-day high overnight, while the British pound was up 0.27% against the dollar, at $1.31735.

In the short term, risk appetite has improved somewhat in recent days, with concerns around unfavourable growth and inflation easing, and the U.S. equity markets off to a strong start to Thursday's session. That may be adding to the safe-haven dollar's weakness, Serebriakov said.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell sharply last week to the lowest level since mid-March 2020.

In another report, the Labor Department said its producer price index for final demand rose, but the increase was less than economists polled by Reuters expected, both on a monthly and a year-on-year basis.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was up 0.54% versus the dollar at $0.74195, its highest since Sept. 7.

The New Zealand dollar also rose, up 0.92% at $0.70285, its highest in 2-1/2 weeks.

The dollar's downward trend may be temporary, as 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," said Neil Jones, head of FX sales at Mizuho.

Elsewhere, the cryptocurrency bitcoin was down 0.19% at $57,262. 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.