U.S. dollar rises to two-week high as Fed taper view builds

© Reuters. FILE PHOTO: U.S. one hundred dollar notes are seen in this picture illustration taken in Seoul February 7, 2011. REUTERS/Lee Jae-Won/File Photo

By Gertrude Chavez-Dreyfuss and Iain Withers

NEW YORK/LONDON (Reuters) -The dollar climbed to a two-week peak against a basket of major currencies on Monday, as investors continued to price in expectations that the U.S. Federal Reserve could reduce its asset purchases sooner rather than later despite a surge in COVID-19 cases.

The dollar index earlier rose to 92.887, its highest level since Aug. 27. It was last up 0.1% at 92.707.

A flurry of U.S. economic data is due out this week, starting with U.S. consumer price data on Tuesday, which will give a broad picture of the economy's progress ahead of the Fed meeting next week.

The Philadelphia Fed President Patrick Harker became the latest official to say he wants the central bank to start tapering this year, saying in a Nikkei interview that he was keen to scale back asset purchases.

"The dollar is off to a quick start to the week on expectations that U.S. data this week, while likely mixed, could cement the case for the Fed to taper stimulus next quarter," said Joe Manimbo, senior market analyst at Western Union (NYSE:WU) Business Solutions in Washington.

Manimbo added that stubbornly high inflation would add to tapering expectations.

Tapering typically benefits the dollar as it means a step toward tightening monetary policy. It also means the Fed will be buying less debt assets, which suggests that there will be less dollars in circulation.

The Wall Street Journal reported on Friday that Fed officials will seek to make an agreement to begin paring bond purchases in November.

Retail sales and productions figures also are slated for later this week.

The euro was among the currencies to lose ground to the dollar, dipping to $1.1770, its lowest level in a little over two weeks, after the European Central Bank said last week it would start to trim its own emergency bond purchases. The euro was last down 0.1% at $1.1799.

Against the yen, the dollar was little changed at 109.95 yen.

"A couple of dynamics favor the dollar," said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:NABZY) in Sydney.

"Re-opening still faces challenges from the consumer, who is cautious, and from bottlenecks which restrict ability for the economy to rebound with some gusto. At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming," Catril added.

In the cryptocurrency market, bitcoin was down 3.1% at $44,567.

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Currency bid prices at 10:05AM (1405 GMT)

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

Previous Change

Session

Dollar index 92.6500 92.6300 +0.03% 2.966% +92.8870 +92.6170

Euro/Dollar $1.1802 $1.1812 -0.08% -3.40% +$1.1814 +$1.1771

Dollar/Yen 109.9200 109.9150 +0.01% +6.39% +110.1550 +109.8600

Euro/Yen 129.72 129.79 -0.05% +2.21% +129.8600 +129.5900

Dollar/Swiss 0.9208 0.9181 +0.33% +4.11% +0.9241 +0.9182

Sterling/Dollar $1.3838 $1.3831 +0.07% +1.31% +$1.3845 +$1.3797

Dollar/Canadian 1.2658 1.2695 -0.31% -0.62% +1.2695 +1.2649

Aussie/Dollar $0.7364 $0.7354 +0.14% -4.27% +$0.7374 +$0.7337

Euro/Swiss 1.0866 1.0839 +0.25% +0.00% +1.0880 +1.0839

Euro/Sterling 0.8526 0.8538 -0.14% +0.00% +0.8540 +0.8511

NZ $0.7113 $0.7127 -0.19% -0.95% +$0.7120 +$0.7098

Dollar/Dollar

Dollar/Norway 8.6475 8.6685 -0.21% +0.74% +8.6975 +8.6300

Euro/Norway 10.2077 10.2290 -0.21% -2.48% +10.2455 +10.1720

Dollar/Sweden 8.6222 8.6310 -0.11% +5.20% +8.6591 +8.6224

Euro/Sweden 10.1775 10.1890 -0.11% +1.00% +10.2024 +10.1740