Dollar awaits Powell’s remarks as hawks urge early taper

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TOKYO — The dollar paused on Friday as

investors awaited a highly-anticipated speech by Federal Reserve

Chair Jerome Powell later in the day, following small gains the

previous day after fresh calls for early tapering from a few

hawkish Fed policymakers.

A dovish tone from the Fed’s chief could counter worries

about economic damage from the Delta coronavirus variant and

fears about political fallout from a bomb attack in Kabul,

possibly spurring bids in riskier currencies against the dollar.

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The dollar index stood at 93.030, bouncing back from

Thursday’s low of 92.807 as the euro traded at $1.1755,

having eased from the previous day’s high of $1.1779.

Sterling ticked down to $1.3695. Against the

safe-haven yen, the dollar eased slightly to 109.98 yen.

Dallas Federal Reserve President Robert Kaplan suggested he

expects the Fed to start raising interest rates next year, a

comment that analysts took as more hawkish than last week when

he appeared nervous about the potential impact of the Delta

variant’s spread on the economic recovery.

Two other regional Fed chiefs — Kansas City Fed President

Esther George and St. Louis Federal Reserve President James

Bullard — also downplayed the impact of the Delta variant in

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separate interviews, with Bullard repeating his call for the Fed

to start trimming its $120 billion in monthly bond purchases

soon.

Many investors, however, think Powell will strike a more

dovish tone in his speech at 1400 GMT in the Kansas City Fed’s

central banking conference.

The event, which normally takes place in Jackson Hole,

Wyoming, but is being held virtually for the second straight

year due to the pandemic, has been often used by Fed

policymakers in the past to provide guidance on future policy.

“While Chair Powell is likely to … lay the groundwork for

an eventual taper, we expect him to err on the side of caution

and patience this week given that the macroeconomic landscape

has deteriorated since the July policy gathering,” said Candice

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Bangsund, portfolio manager at Fiera Capital in Montreal,

Canada.

The rough consensus in the market is that Powell will likely

announce tapering in the fourth quarter, giving a clear signal

at one meeting before the actual announcement.

“For Powell, there is no merit in specifying the exact

timing for tapering at today’s speech. If he doesn’t drop a

clear hint, that will be mildly positive for stocks,” said

Kyosuke Suzuki, president of financial algotech company at Ryobi

Systems.

Risk-sensitive currencies are likely to gain while the yen

is likely to weaken in that case, he added.

The dollar was supported also by caution after a suicide

bomb attack in Kabul airport, which killed 13 U.S. troops, 28

Taliban members and scores of civilians.

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Islamic State, an enemy of both the Taliban and the West,

claimed responsibility.

The attack was carried out as U.S. forces raced to complete

their withdrawal from Afghanistan by an Aug. 31 deadline set by

President Joe Biden.

“There are worries events in Afghanistan could erode public

approval of Biden Administration. Potential geopolitical

instability created by U.S. withdrawal would be another source

of anxiety,” said Toshiya Nakamura, chief manager of forex at

Mitsubishi UFJ Trust Bank.

Elsewhere, the Australian dollar fetched $0.7243,

little changed after data showing Australian retail sales

plunged in July due to the spread of the Delta variant.

The New Zealand dollar dipped slightly after Prime Minister

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Jacinda Ardern announced the lockdown in Auckland, the country’s

biggest city, is likely to remain in place for further two

weeks.

The kiwi last stood down 0.1% at $0.6939.

In cryptocurrencies, bitcoin slipped to $46,743

while ether also eased to $3,084.

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Currency bid prices at 0357 GMT

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

Previous Change

Session

Euro/Dollar $1.1759 $1.1751 +0.06% -3.76% +1.1759 +1.1742

Dollar/Yen 109.9850 110.0400 -0.05% +6.49% +110.0800 +109.9700

Euro/Yen

Dollar/Swiss 0.9170 0.9180 -0.10% +3.66% +0.9183 +0.9170

Sterling/Dollar 1.3696 1.3703 -0.04% +0.25% +1.3703 +1.3679

Dollar/Canadian 1.2681 1.2685 -0.02% -0.41% +1.2708 +1.2681

Aussie/Dollar 0.7238 0.7238 +0.02% -5.90% +0.7245 +0.7222

NZ 0.6938 0.6948 -0.12% -3.36% +0.6953 +0.6934

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Hideyuki Sano, additional reporting by Tomo

Uetake

Editing by Shri Navaratnam and Kim Coghill)