Dollar rises, Fed’s Yellen speech in focus

The U.S. dollar rose against a basket of currencies on Tuesday, as European investors returned from an Easter break, with the focus on a speech by Federal Reserve chair Janet Yellen who could lay the ground for interest rates hikes later this year.

The dollar index .DXY was up 0.2 percent at 96.152 after slipping on Monday from 96.399, its highest since March 16. The euro was lower at $1.1180 EUR= while the yen was also 0.2 percent down at 113.67 yen per dollar JPY=.

The outlook on the dollar – which turned firmer last week in large part due to a series of hawkish comments from Fed officials – will depend on what Yellen says at a speech to the Economic Club of New York. She is due to speak on the economic outlook and monetary policy at 1620 GMT on Tuesday.

“After the optimistic comments we had from other Fed officials in the recent past, we expect Yellen to be more balanced compared to a very dovish Fed statement,” said Yujiro Gato, currency strategist at Nomura. “Clearly that will be a driver for the dollar today.”

The dollar had come under pressure in thin trading conditions on Monday after soft U.S. consumer spending prompted economists to cut first-quarter gross domestic product growth estimates.

Also, the Atlanta Federal Reserve’s GDPNow forecast model on Monday showed the U.S. economy growing at below an annualised 1 percent in the first quarter, down from 1.4 percent in the fourth quarter.

And while the soft data dimmed prospects for an imminent hike in U.S. rates, which some Federal Reserve officials last week said could be as early as next month if the economy maintained its momentum, the consensus is the U.S. economy is still growing at a steady pace and a hike is likely in June.

The yen, on the other hand, underperformed.

Traders said speculation of more monetary stimulus and talk that Japanese Prime Minister Shinzo Abe will delay an unpopular sales tax hike and call a snap election appeared to be keeping the yen under pressure.

“While the market may have mostly priced in the prospect of the sales tax hike delay, it remains wary of fresh stimulus talk. Friday’s BOJ tankan bears watching as weak results could fuel hopes for more stimulus,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Economists polled by Reuters expect the Bank of Japan’s quarterly tankan business sentiment survey to show a deterioration in business sentiment due to a stronger yen and concerns over the global economy.

Source: Reuters