Dollar takes a breather, even as interest rate worries dent risk appetite

NEW YORK/LONDON Sept. 27 (Reuters) – The dollar made little progress in a choppy session on Tuesday, while appetites for riskier bets were still weak as Federal Reserve policymakers spoke of more rate hikes.

The greenback rose against the euro but lost ground against the British pound and Japanese yen, with all eyes on central banks and the economic growth impact of their efforts to contain inflation.

Sterling, after previously rising more than 1% to $1.0837, was most recently up 0.3%. It fell to a low on Monday. The euro fell 0.20% against the dollar at $0.96 and the dollar gained 0.1% against the yen at 144.86. It didn’t help that Wall Street indices also had a volatile session.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in a WSJ Live interview on Tuesday that the Fed should continue to tighten until it has evidence that underlying inflation is going down, then pause and “let the economy tighten. make it work” to see if it’s done enough.

Earlier, Huw Pill, chief economist at the Bank of England (BoE), said the BoE is likely to provide a “major policy response” to last week’s announcement of the tax cut, but will have to wait until its next meeting in November.

“The central banks have not relented despite the disruption in the financial markets that we have seen. Markets have been looking for some sort of rescue and it is not coming from the BoE or the Fed. That still makes the dollar a very compelling safe haven,” said Mazen Issa, senior FX strategist at TD Securities in New York.

And the week’s trading brings “a little extra noise” as investors also prepare their portfolios for the end of the quarter, according to Issa.

Tuesday’s moves were mild compared to the dollar’s significant recent gains. The euro was still not far above the 20-year low a day earlier, and the yen was just off the 24-year low last week before Japanese authorities intervened to strengthen the currency.

The pound was also not far above the record low of $1.0327 hit Monday, in a plunge that started Friday as markets were rocked by the UK’s proposed budget, which would rely on unfunded tax cuts to boost growth.

England’s central bank had said on Monday it would not hesitate to change rates and was monitoring markets “very closely”, leading some market participants to look for a rate hike between meetings.

The Aussie last fell 0.5% to $0.64, while the New Zealand kiwi fell 0.0% to $0.56.

Bitcoin last fell 0.6% at $19,118 after previous trading above $20,000.

Reporting by Sinéad Carew, Alun John, Tom Westbrook; Editing by Mark Potter, Nick Zieminski and Jonathan Oatis

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