By Tom Westbrook

SINGAPORE (Reuters) – The dollar hovered around recent lows on Friday and was set to notch a modest weekly drop as traders’ concerns at taper talk in Federal Reserve minutes faded, though a pullback in commodity prices and nerves about virus outbreaks kept losses in check.

The dollar has given back a bounce it made after a mention of possible future tapering discussions, in minutes from the Fed’s April meeting, prompted fears of early rate rises.

Investors now figure that any action remains a long way away and that the path might again be clear for a resumption of April’s downtrend as the U.S. trade and account deficits weigh.

Against the euro the dollar was parked at $1.2230, not far above the four-month low $1.2245 it hit earlier in the week and close to testing major support around $1.2345. The dollar index was held below 90 and was last at 89.777.

The index, which measures the greenback against six major currencies, is down about 0.6% for the week so far. Against the Japanese yen the dollar held at 108.74, for a weekly loss of roughly 0.5%.

“It has been just over 24 hours since markets got spooked by the prospect of the U.S. Fed tapering its asset purchases, but having proverbially slept on it, the mood seems less sour,” ANZ analysts said in a note. “Which seems reasonable – it’s not like the Fed is on the brink of wanting to actually act.”

SHADOW OF A DOUBT

Lingering doubts about the Fed as well as worry about new COVID-19 outbreaks and curbs to contain them in Malaysia, Thailand, Taiwan, Vietnam and Singapore held most of the majors steady in Asia.

Pullbacks in commodity prices after measures to curb speculation in China weighed gently on the export-exposed Australian and New Zealand dollars. Each fell about 0.2%. [AUD/]

“European re-opening is a theme playing out in the background, but to fear or not to fear Fed taper is still an issue,” said Bank of Singapore currency analyst Moh Siong Sim.

Sterling, which is heading for a third consecutive weekly gain and has climbed 2.6% during May so far, was pinned just short of multi-year highs as traders await retail sales and Purchasing Managers’ Index data due later on Friday.

April figures may be depressed by lockdowns, but the hope is that Britain’s reopening this week is going to lay a solid foundation for recovery in a population where just shy of three-quarters of adults have had their first inoculation shots.

Sterling last traded steady at $1.4185.

Left behind in all the recent focus on inflation, tapering and future hikes has been the Japanese yen. It is near its weakest in three years at 133.02 per euro and is poised for a fifth consecutive weekly loss against the common currency.

Against the dollar, the yen has slid 5% for the year to date and is the worst performing G10 currency. It has fared even worse on some crosses, shedding nearly 10% on the Canadian dollar and nearly 9% on the pound.

(Reporting by Tom Westbrook; Editing by Lincoln Feast.)