Dollar firms after a dip as markets weigh rate policies, coronavirus

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  • U.S. dollar index off less than 0.1%
  • Dollar gains on yen, slips to euro, pound
  • Different central bank moves are key

NEW YORK/LONDON, Dec 14 (Reuters) - The U.S. dollar was down slightly on Tuesday after coming back from a dip that nearly wiped out its gains from the day before as markets jostled with the different paths major central banks will choose to fight inflation and the pandemic's economic drag.

The U.S. dollar index was down less than 0.1% to 96.315 in midmorning trading in New York after having earlier given up much of its Monday gain of 0.3%.

New U.S. producer price data released earlier in the day affirmed market expectations that the U.S. Federal Reserve will announce on Wednesday that it will quicken its withdrawal from bond purchases. read more

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The report showed factory gate inflation at 11-year highs.

"It's clear the Fed needs to react to higher inflation," said David Riley, chief investment strategist at BlueBay Asset Management. "It's an environment where it's very hard not to be positive on the US dollar," he said.

Markets have been pricing for the Fed to wrap up bond-buying around March and proceed with rate hikes. read more

"We have a decent long dollar position based on what we expect the Fed to do," said Charles Diebel, head of fixed income at Mediolanum International Funds.

The euro and the British pound gained on the dollar.

The euro firmed 0.1% to $1.1294 after touching a one-week low of $1.12605 overnight . Germany's Ifo institute on Tuesday predicted the German economy to shrink by 0.5% quarter-on-quarter in the final three months of this year and to stagnate in the first three months of next year. read more

Sterling gained 0.2% to $1.323 after data showed employers hired a record number of staff in November.

But the Japanese yen lost ground, with the dollar trading at 113.69 yen at 1520 GMT.

Commodity-associated currencies, including the Australian and Canadian dollar, lost about 0.1% to 0.2% of their value to the greenback as oil prices dropped toward $73 a barrel. The International Energy Agency (IEA) said that the Omicron coronavirus variant is set to dent the global demand recovery. read more

Exchange rates have been moving with changing expectations for interest rate differences across currencies.

The back-and-forth reflects the prospect for diverging choices by major central banks between fighting inflation by pulling back monetary support for their economies or providing easy money because of the spread of the Omicron variant. read more

That's different from the start of the pandemic when central banks tended to make the same moves.

The Fed's meeting headlines a string of policy decisions this week from the European Central Bank, Bank of England, the Swiss National Bank, the Bank of Japan and others.

While money markets price good odds of a Fed rate hike by June , no moves are expected any time soon from the ECB, BOJ or SNB. And, the Omicron threat could force the BoE to postpone a rate hike.

Crypto currency bitcoin gained 1% to $47,292, but remains some 30% below record highs reached in early November.


Currency bid prices at 10:20AM (1520 GMT)

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Reporting by David Henry in New York and Sujata Rao in London. Editing by Raissa Kasolowsky, Ed Osmond, William Maclean

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