Fed-fuelled dollar forces rival currencies onto back foot

* Fed's hawkish shift has dollar up 1.6% this week

* ECB, BOJ seen behind the Fed's tapering curve

* Graphic: World FX rates Link

By Julien Ponthus

LONDON, June 18 (Reuters) - The dollar was headed for its best week in nearly nine months on Friday, with rival currencies struggling to shake the pressure exerted by the Federal Reserve's hawkish shift in tone.

With investors pricing in a sooner-than-expected tapering of extraordinary U.S. monetary stimulus, the euro and the yen failed to recoup losses made during the last two days.

Hovering above $1.19, the euro was just 0.05% higher against the dollar and on course for its worse week since October with a 1.6% fall.

With a dovish European Central Bank seemingly far behind the Fed in the monetary policy cycle, traders will be reluctant to buy euros against dollars.

"The U.S. central bank is one step ahead and as a result USD is likely to remain well supported against the EUR," Commerzbank strategists said in their daily note.

"As no important data is due for publication today or at the start of next week, the FX market is likely to feel mainly the after-effects of the Fed meeting," they added.

With investors busy closing short positions since the Fed meeting, the dollar index =USD hit a more than two-month high of 92.071, and is on track for a 1.6% weekly gain, its largest since September.

At 1104 GMT, the dollar index was up 0.05% at 91.915.

The greenback is also on track for a weekly 0.4% rise against the yen JPY=EBS , which sat at 110.11 per dollar after hitting an 11-week low of 110.82.

It was little moved by the Bank of Japan keeping its main policy settings steady, as expected.

The Swiss franc was also on course to lose about 2.3% against the dollar this week after the Swiss National Bank signalled on Thursday that monetary policy would stay ultra-loose for the foreseeable future.

Sterling GBP= fell 0.2% to $1.3899 and was headed for a weekly loss of 1.5% while fresh data showed an unexpected fall in Britain's retail sales.

Versus the euro, it was down around 0.2% at 85.69 pence per euro, on track for a small weekly fall.

The Australian dollar struck its lowest since December at $0.7508 AUD= and the Kiwi fell to its weakest since April at $0.6982 NZD= , defying eye-popping reports on Australian jobs and New Zealand growth this week.

In the world of crypto currencies, bitcoin failed to get a lift from the news that Spanish bank BBVA BBVA.MC would open a bitcoin trading service to all private banking clients in Switzerland. Bitcoin was down 0.5% at $37,879.

The shakeout on foreign exchanges has been triggered by Fed forecasts, or 'dot plots,' showing 13 of the 18-person policy board saw rates rising in 2023, versus only six previously, with the median board member tipping two hikes in 2023.

While the plots are not commitments and have a poor track record of predicting rates, the shift to bring rate hike expectations forward was a shock that has also reverberated through the bond market and metal prices.

World FX rates Link
Fed catches out dollar shorts Link

Reporting by Julien Ponthus and Tom Westbrook; Editing by
Catherine Evans

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