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Dollar drops in thin trade, but Fed taper offers support


Credit: Reuters/Kim Hong-Ji


1 of 2. U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013.


The dollar bought 104.05 yen, drifting in a slim 103.92/104.08 range after easing back from a five-year peak of 104.64 scaled on Friday.


Equally subdued, the euro was steady at $1.3674, having climbed off a two-week trough of $1.3625 on Friday. Against the yen, the common currency stalled at 142.28, off a five-year high of 142.90.


The greenback rose last week after the Federal Reserve took a first step towards winding down its massive stimulus program, trimming its monthly asset purchases by $10 billion to $75 billion.


But profit taking was quick to set in given investors had been speculating for months on the timing of such action.


'After such a volatile couple of weeks which came to a head with the FOMC announcement last week, markets are very much sidelined at the moment,' said Sue Trinh, senior currency strategist at RBC in Hong Kong.


The pullback in the greenback helped lift both the Australian and the Canadian dollars off 3-1/2 year troughs. The Aussie was last at $0.8925, while the loonie traded at C$1.0641 per U.S. dollar.


Data on Friday supported the Fed's decision with revised figures showing the world's biggest economy grew at its fastest pace in almost two years in the third quarter.


Analysts at BNP Paribas said upcoming U.S. data need to meet a certain threshold of strength in order to maintain the dollar's upward momentum.


'However, with the Fed having begun the tapering process now, the burden of proof has shifted somewhat - data now has to be just strong enough to keep tapering on track, as opposed to the presumably stronger track record needed to justify a start to the tapering process,' they wrote in a note to clients.


U.S. data due for release this week include personal income and spending on Monday and durable goods on Tuesday.


Investors are also keeping an eye on China's money markets where rates rose even after the country's central bank last week sought to allay fears of a cash crunch by injecting $50 billion in three days into the interbank market.


(Editing by Shri Navaratnam)


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