FOREX-Dollar falls on euro strength after ECB meeting as rates move

       * Euro gains nearly 0.7% to $1.168
    * U.S. dollar index falls to 93.3560
    * BoJ gives another dovish outlook on inflation
    * Reserve Bank of Australia fuels rate-hike wagers

 (New throughout, updates prices, market activity, comments; new
byline, changes dateline, previous LONDON)
    By David Henry and Tommy Wilkes
    NEW YORK/LONDON, Oct 28 (Reuters) - The euro rose sharply
against the U.S. dollar on Thursday as foreign currency traders
sorted through moves in the interest rate markets and comments
by the European Central Bank President Christine Lagarde.
    The euro rose nearly 0.7% to at $1.168 at 1425
GMT. The dollar index of major currencies fell 0.6% to
93.3560.
    The volatility came in a busy day of central bank-driven
activity that started in Australia and Japan and precedes a
meeting of the U.S. Federal Reserve next week.
    "The market is very much triggered and sensitive to
inflation worries and this notion that central banks are behind
the curve," said Mazen Issa, senior currency strategist at TD
Securities.
    Exchange rate movements picked up on Wednesday when the Bank
of Canada made hawkish comments. The markets had been on pause
early at the start of the week.
    A contributing factor to the volatility, Issa said, is the
approaching end of the month when more investment managers
rebalance their portfolios across currencies.
    Currency traders are trying to predict the direction of
interest rates and their inflation-adjusted differences across
currencies.
    Interest yield curves have flattened, suggesting to some
that central banks will have to sacrifice some support for the
pandemic recovery by allowing interest rates to rise to try to
hold back inflation.
    Before Lagarde spoke in a press conference, the euro moved
little as the ECB, as expected, kept policy unchanged,
reaffirming its plan to keep buying bonds and hold down interest
rates for years to come.
    But some saw Lagarde's comments as not as forceful in
affirming the ECB's dovish position as the market expected.
    Earlier on Thursday the Reserve Bank of Australia declined
to buy a government bond at the heart of its stimulus programme
and the Aussie dollar fell in response to speculation the
central bank will allow rates to rise earlier than expected.

    The Aussie initially fell 0.5% after the RBA statement but
soon erased those losses and was 0.3% against the U.S. dollar at
1425 GMT.
    The Bank of Japan, as expected, stuck with its dovish stance
at its meeting and the yen showed no reaction.
    Against the yen the dollar gained about 0.4% to 113.38
 per dollar.
    The BoJ cut its consumer inflation forecast for the year
ending in March 2022 to 0% from 0.6% and, as expected, the
overall takeaway reinforced market bets it will lag other
central banks in dialling back crisis-mode policies.
    A U.S. government report of third-quarter gross domestic
product showed no immediate impact on the dollar. The report had
been expected to be weak but not matter much to the greenback
because more recent economic data has been stronger.
    In cryptocurrencies, bitcoin rose 5% to $61,423.
    ========================================================
    Currency bid prices at 10:25AM (1425 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Dollar index                 93.3560        93.8980     -0.57%         3.751%        +93.9680    +93.3500
 Euro/Dollar                  $1.1680        $1.1604     +0.66%         -4.40%        +$1.1683    +$1.1582
 Dollar/Yen                   113.3800       113.8050    -0.36%         +9.74%        +113.8600   +113.3200
 Euro/Yen                     132.41         132.03      +0.29%         +4.33%        +132.4800   +131.5800
 Dollar/Swiss                 0.9132         0.9182      -0.53%         +3.23%        +0.9194     +0.9129
 Sterling/Dollar              $1.3798        $1.3740     +0.43%         +1.01%        +$1.3801    +$1.3723
 Dollar/Canadian              1.2343         1.2364      -0.13%         -3.04%        +1.2382     +1.2338
 Aussie/Dollar                $0.7543        $0.7520     +0.31%         -1.95%        +$0.7543    +$0.7479
 Euro/Swiss                   1.0665         1.0653      +0.11%         -1.31%        +1.0670     +1.0641
 Euro/Sterling                0.8462         0.8440      +0.26%         -5.32%        +0.8466     +0.8423
 NZ                           $0.7204        $0.7171     +0.46%         +0.32%        +$0.7206    +$0.7153
 Dollar/Dollar
 Dollar/Norway                8.3300         8.4215      -1.06%         -2.96%        +8.4410     +8.3325
 Euro/Norway                  9.7309         9.7693      -0.39%         -7.03%        +9.7977     +9.7246
 Dollar/Sweden                8.5391         8.5845      +0.20%         +4.18%        +8.6046     +8.5406
 Euro/Sweden                  9.9750         9.9555      +0.20%         -1.01%        +9.9855     +9.9582


 (Reporting by David Henry in New York and Tommy Wilkes in
London. Editing by Christina Fincher and Barbara Lewis)

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