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Dollar slips after Powell indicates tapering by year end

NEW YORK (Reuters) – The dollar slid on Friday after the market perceived a highly anticipated speech by Federal Reserve Chair Jerome Powell to be dovish, even though he indicated tapering the U.S. central bank’s massive economic support should start by year’s end.

FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

Powell said there has been clear progress toward maximum employment and that he was of the view that if the U.S. economy evolved broadly as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year.”

But Powell told the Fed’s annual late-August symposium in Jackson Hole, Wyoming, that the timing and pace of tapering does not involve a signal for when interest rates will begin to rise, a message the market perceived as being dovish.

The speech showed Powell has finally committed to a timeline on tapering, but it was not in line with the hawkish views of some Fed officials, said Gregory Anderson, global head of FX strategy at BMO Capital Markets.

“It’s pretty clear that if you were worried about the timeline, that we announce in September that we’re going to taper starting Oct. 1, that’s not there in this speech,” Anderson said.

“It’s not as bad as feared based on the most extreme of the hawks,” he said.

The dollar index, which measures the greenback’s performance against a basket of six major currencies, fell 0.35% to 92.720.

The euro rose 0.4% to $1.1794, while the yen rose 0.15% at $109.9200.

The dollar began to retreat just before Powell spoke after James Bullard, president of the St. Louis Fed, repeated his view that the U.S. central bank should start reducing its asset purchases soon and end the program by next year’s first quarter.

Benchmark 10-year Treasury yields fell 1.7 basis points to trade at 1.3273% after jumping to 1.375%, the highest since Aug. 12, on Thursday following bullish comments by another regional Fed president.

Overnight, the safe-haven dollar got some support after Thursday’s suicide bomb attack at Kabul airport.

The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced that a lockdown against COVID-19 in Auckland is likely to remain in place for another two weeks.

The Swedish crown was flat at 8.7070 after mixed economic data.

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