Dollar rebounds against yen on Fed rate talk

Big 5

The dollar rebounded from 7-week lows against the yen on Wednesday following hawkish comments from Federal Reserve officials.

Easing risk aversion also reduced bids for the safe-haven Japanese currency as shares in Tokyo bounced. [.T]

The dollar was up 0.8 percent at 101.100 yen JPY=, with its advance accelerating after it rose past the 100.68 area, which traders had deemed a near-term level of resistance.

The U.S. currency had fallen to 99.550 yen overnight, its lowest since June 24, when post-Brexit referendum turmoil had boosted the safe-haven yen.

The euro lost 0.2 percent to $1.1261 EUR= following an overnight rise to $1.1323, its highest since June 24.

The greenback had been on the defensive since late last week as downbeat U.S. indicators dented prospects of a near-term Fed rate hike.

But it gained some reprieve on Wednesday on hawkish views expressed by Atlanta Fed President Dennis Lockhart, who said two hikes in 2016 was a possibility, and on New York Fed President William Dudley saying the central bank could possibly raise rates as soon as September.

“Hawkish views from Fed officials can prompt short covering in the dollar, but they are not sufficient enough to kick off an uptrend,” said Junichi Ishikawa, forex analyst at IG Securities in Tokyo.

“This is because the markets now expect only one or two rate hikes this year, when at the end of 2015 they had expected up to four,” added Ishikawa, who sees negative economic developments in Europe and Britain in the wake of Brexit weighing on the Fed’s decisions and cancelling out any lift from positive U.S. indicators.

Uncertainty over Japanese monetary policy was also seen supporting the yen in the medium term. The BOJ, which underwhelmed the markets in July with what many investors deemed were token easing steps, will conduct a comprehensive policy review in September.

“Policy uncertainty has been weighing on Japanese bonds for a while and now the currency market seems to be taking notice as well,” said Makoto Noji, a senior strategist at SMBC Nikko Securities in Tokyo.

Analysts say Japan’s debt market has been unsettled by speculation that the BOJ would choose against taking interest rates deeper into negative territory or increasing its bond buying.

The dollar index was up 0.3 percent at 95.025 .DXY after losing 0.8 percent on Tuesday, when it touched a 7-week trough of 94.426.

Currency markets will seek fresh direction from comments expected from St. Louis Fed President James Bullard and the release of the Fed’s July policy meeting minutes later in the session.

Having struck near 31-year lows earlier in the week, sterling traded almost unchanged at $1.3028 GBP=D4 following a 1.3 percent rise overnight due to slightly higher than expected U.K. inflation data.

Investors will look to the British employment data later in the session to see if the pound can solidify its position.

The Canadian dollar slipped to C$1.2882 CAD=D4 per dollar after touching a 7-week high of C$1.2798 on Tuesday, when it was helped by crude oil’s advanced to 1-month highs.

The Australian dollar lost 0.4 percent to $0.7663 AUD=D4 and the New Zealand dollar was down 0.3 percent at $0.7252 NZD=D4.

Source: Reuters