FOREX-Dollar index drops on euro rise after ECB comments

       * Euro gains nearly 0.7% to $1.1683
    * U.S. dollar index falls to 93.3320
    * Sterling gains 0.4% to $1.3793
    * BoJ gives another dovish outlook on inflation
    * Reserve Bank of Australia fuels rate-hike wagers

 (Revises throughout, updates prices, market activity, adds
comment; new byline, changes dateline, previous NEW YORK/LONDON)
    By David Henry
    NEW YORK, 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, comments by the
European Central Bank President Christine Lagarde and a
weaker-than-expected U.S. economic report.
    The euro rose nearly 0.7% and was headed for its biggest
daily gain since May. It traded at $1.1683 in the
afternoon in New York.
    The dollar index of major currencies lost 0.6% TO
93.3320.
    The volatility came in a busy day of central bank-driven
activity in Australia, Japan and Europe - all ahead of a
meetings next week of the U.S. Federal Reserve and the Bank of
England.
    "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.
    After starting the week calmly, exchange rates started
making bigger swings on Wednesday when the Bank of Canada made
hawkish comments.
    A contributing factor to the increasing volatility, said
Issa, is the approaching end of the month when more investment
managers rebalance their portfolios across currencies.
    As central banks each chart adjustments to monetary policies
adopted during the pandemic, traders are trying to predict the
direction of interest rates and inflation-adjusted yields across
currencies.
    Interest yield curves have flattened recently in uneasy bond
markets, suggesting to some that central banks will have to
sacrifice 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. The ECB in its policy statement had stood, as expected,
by its plan to keep buying bonds and hold down interest
rates.
    But some saw Lagarde's comments as not being as forceful in
affirming the ECB's dovish position as markets expected.
    "President Lagarde failed to give enough pushback against
market expectations of rate hikes next year," Rabobank
economists wrote in a note.
    The dollar got no help from a U.S. government report that
gross domestic product grew at only a 2% annualized rate in the
quarter ended in September. Economists polled by Reuters had
forecast a 2.7% rate.
    More recent U.S. economic data has been stronger, so the
report had not been expected to matter much to the dollar.
    The British pound firmed against the dollar but also slipped
against the euro as much as 0.3%. Sterling was last up 0.4% to
$1.3793.
    The pound has been buffeted recently by speculation over
whether the Bank of England would proceed with an interest rate
hike at its meeting next week.
    Early 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 up 0.4% against the U.S. dollar
at 1740 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 lost 0.3% to 113.80..
    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.
    In cryptocurrencies, bitcoin rose 4% to $61,031.

    ========================================================
    Currency bid prices at 1:40PM (1740 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Dollar index                 93.3320        93.8980     -0.59%         3.724%        +93.9680    +93.2770
 Euro/Dollar                  $1.1683        $1.1604     +0.69%         -4.37%        +$1.1692    +$1.1582
 Dollar/Yen                   113.4800       113.8050    -0.28%         +9.84%        +113.8600   +113.2600
 Euro/Yen                     132.57         132.03      +0.41%         +4.45%        +132.5900   +131.5800
 Dollar/Swiss                 0.9118         0.9182      -0.69%         +3.06%        +0.9194     +0.9117
 Sterling/Dollar              $1.3793        $1.3740     +0.41%         +0.98%        +$1.3814    +$1.3723
 Dollar/Canadian              1.2344         1.2364      -0.17%         -3.07%        +1.2382     +1.2331
 Aussie/Dollar                $0.7548        $0.7520     +0.39%         -1.87%        +$0.7555    +$0.7479
 Euro/Swiss                   1.0654         1.0653      +0.01%         -1.42%        +1.0671     +1.0641
 Euro/Sterling                0.8468         0.8440      +0.33%         -5.25%        +0.8470     +0.8423
 NZ                           $0.7202        $0.7171     +0.43%         +0.29%        +$0.7216    +$0.7153
 Dollar/Dollar
 Dollar/Norway                8.3275         8.4215      -1.12%         -3.02%        +8.4410     +8.3180
 Euro/Norway                  9.7299         9.7693      -0.40%         -7.04%        +9.7977     +9.7108
 Dollar/Sweden                8.5200         8.5845      +0.00%         +3.95%        +8.6046     +8.5197
 Euro/Sweden                  9.9552         9.9555      +0.00%         -1.20%        +9.9855     +9.9539


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

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