* Surge in Delta variant, drop in Chinese stocks sour market
mood
* Aussie in doldrums as local cases rise despite broad
lockdown
* Bitcoin eyes $40,000 after report Amazon to accept it as
payment
By Kevin Buckland
TOKYO, July 26 (Reuters) - The safe-harbour yen and dollar
started the week firmer against riskier currencies like the
Aussie as rising COVID-19 cases and a decline in Asian equities
set a cautious tone ahead of the Federal Reserve"s meeting this
week.
The yen rose about 0.5% to 81.08 per Australian
dollar on Monday, while the dollar gained 0.2% to $0.7351 per
Aussie, approaching an almost eight-month high of
$0.72895 reached last week.
Against the dollar, the yen added 0.2% to 110.32,
helped by a decline in U.S. Treasury yields.
The euro rose 0.1% to $1.17795, stabilizing after
its drop last week to the lowest since early April at $1.1752.
The dollar index, which measures the currency against
six major peers, slipped slightly to 92.833 due to pressure from
the euro and yen, but was still close to last week"s 3-1/2-month
high of 93.194.
It has gained nearly 4% from a recent low on May 25 as an
improving U.S. economy bolstered the outlook for the Fed to
start paring asset purchases as early as this year.
Commonwealth Bank of Australia projects the dollar can
continue to strengthen this week on the possibility of the Fed
moving a step closer to tapering at the conclusion of its
two-day policy meeting on Wednesday.
"We expect the FOMC to drop "substantial" from "substantial
further progress"," in its guidance on the necessary conditions
for the labour market before removing monetary support, CBA
strategist Joseph Capurso wrote in a client note.
"Removing "substantial" will signal the FOMC believes it
will soon be appropriate to taper asset purchases," setting up a
possible announcement of a taper in September, he said.
The risk to such an outlook is the rise in COVID-19 cases in
the United States, coming after the Fed at its last meeting on
June 16 dropped a reference to the coronavirus as a drag on the
economy.
"Overall, the Fed is expected to hold a rather neutral
stance before the Jackson Hole symposium in late August, while
risks are biased to dovish side given the Delta variant spread,"
Mizuho Bank strategist Ken Cheung wrote in a report.
The dollar index eked out a 0.2% gain last week, benefiting
from a safe-haven bid on fears a surge in infections of the
fast-spreading Delta variant could derail the global recovery,
but paring those gains as strong U.S. earnings lifted stocks to
record highs.
The risks from the Delta variant continue to rise globally,
with top infectious disease official Anthony Fauci saying some
Americans may need booster shots amid new mask mandates and a
surge in new cases.
China reported its highest number of cases since the end of
January, while new infections have also spiked in Japan, where
Tokyo is currently hosting the Olympics.
Australia"s most populous state of New South Wales, home to
Sydney, reported a rise in new COVID-19 cases on Monday despite
a weeks-long stay-at-home order.
Meanwhile, MSCI index of Asia-Pacific stocks excluding Japan
sank 2% on Monday, as Chinese blue chips slumped
3.8%.
However, cryptocurrencies were buoyed on Monday after
London"s City A.M. newspaper cited an un-named "insider" on the
weekend as saying that Amazon is looking to accept
bitcoin payments by year-end.
The report followed Twitter boss Jack Dorsey"s
comment on Friday that the digital currency is a "big part" of
the social-media firm"s future.
Bitcoin extended its gains from near $29,000 last
week to push back to the cusp of $40,000 on Monday for the first
time since mid-June. It last traded about 8.5% higher at
$38,455.
Smaller rival ether was last up 6.8% at
$2,344.08, recovering from as low as $1,717.17 last week.
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Currency bid prices at 0605 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar $1.1781 $1.1769 +0.11% -3.57% +1.1785 +1.1764
Dollar/Yen 110.3150 110.5500 -0.25% +6.76% +110.5750 +110.2700
Euro/Yen
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