Dollar turns down in risk-on pivot as Fed chair talks policy

2 minute read

A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration

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  • Dollar turns down after rising on Fed policy statement
  • Dollar fall comes as markets turn toward risk
  • Australian and Canadian dollars gain
  • Dollar index down 0.2%

NEW YORK, Dec 15 (Reuters) - Traders embraced and then turned way from the U.S. dollar on Wednesday as initial enthusiasm for higher interest rates from the Federal Reserve turned into confidence to take more risk with stocks and other currencies.

The U.S. dollar index rose as much as 0.3% right after the Fed issued a new statement on monetary policy that paved the way for three one-quarter-percentage-point interest rate increases next year. read more

But by the time Fed Chair Jerome Powell finished a news conference 90 minutes later, stocks were climbing to near record levels and dollar index was down 0.2%.

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"That was a catalyst to move into some of the riskier currencies, like the euro, like sterling," said Joseph Manimbo, senior market analyst at Western Union Business Solutions.

Other risk-on currencies, such as the dollars of Australia, Canada and New Zealand, also gained against the dollar, while the Japanese yen, seen as safer haven, lost.

"Wall Street is somewhat comforted that the Fed's not on autopilot raising rates. It's going to keep close tabs on the coronavirus and if it needs to go slower it will," Manimbo said.

Attention now turns to meetings on Thursday of the European Central Bank and the Bank of England. The banks are trying to balance the need to support economies threatened by the coronavirus with the need to withdraw easy money to cool inflation.

The greenback has been bolstered recently by expectations that U.S. interest rates will rise faster than those in other countries. The dollar index, even after Wednesday's up-and-down, was about 0.6% short of its highest level in more than a year.

The euro and British pound each rose about 0.3% against the dollar. The euro traded at $1.1292 and the pound at $1.3262 at 4:29 p.m. EST (2129 GMT).

The Australian dollar gained 1% to $0.7173 and the kiwi rose 0.6% to $0.6782.

Versus the Japanese yen, the dollar was up 0.4% to 114.0200.

Cryptocurrency bitcoin was up 2% to $49,225.

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Currency bid prices at 4:29PM (2129 GMT)

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Reporting by David Henry in New York and Elizabeth Howcroft in London Editing by Philippa Fletcher and Matthew Lewis

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