US dollar extends bounce after more Fed officials add rate hike support

[TOKYO] The dollar extended modest gains against the yen and euro early on Monday after it rebounded in recent days as US Federal Reserve policymakers took an upbeat tone on the economy and expressed support for a near-term US interest rate hike.

The dollar was up 0.4 per cent at 100.610 yen, pulling further away from an 8-week low of 99.550 struck early last week.

The euro was down 0.2 per cent at US$1.1300, adding distance between a 8-week peak of US$1.1366 reached on Thursday.

The US currency received a lift on Friday after San Francisco Fed President John Williams said a rate hike in September should be in play.

Fed Vice Chairman Stanley Fischer also gave a generally upbeat assessment of the economy's current strength, saying on Sunday that the central bank is close to hitting its job and inflation targets.

The currency market swayed back and forth last week on conflicting views towards US monetary policy.

The greenback initially gained on hawkish comments from New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart, but dollar bulls were disappointed after the July Fed policy meeting minutes suggested the central bank was not in a hurry to increase rates.

Investors awaited Fed Chair Janet Yellen's speech in Jackson Hole, Wyoming on Friday during a global gathering of central bankers for more concrete policy hints.

"Market attention will be squarely focused on US Fed Chair Yellen's speech at Jackson Hole. We believe she may use the opportunity to signal the Federal Open Market Committee's growing confidence in the outlook for activity and inflation," wrote strategists at Barclays.

"Given the low market expectations for a September or December Fed rate hike, a repricing at the front end of the rates curve should drive a near-term rebound in the USD."

Federal funds futures on Friday suggested traders saw a 53.5 per cent chance of a Fed rate hike this year, up from 48.8 per cent on Thursday, CME Group's FedWatch programme showed.

Sterling was on the defensive after dropping 1 per cent against the dollar on Friday on speculation that Britain could formally begin the process of leaving the European Union early next year.

The pound was down 0.1 per cent at US$1.3055 after being knocked away from a 2-week high of US$1.3186 on Friday.

The Australian dollar slipped 0.2 per cent to US$0.7610 , having touched a 2-week low of US$0.7599. The New Zealand dollar shed 0.4 per cent to US$0.7246.

The Aussie and kiwi extended losses from Friday, when ratings agency Moody's cut its outlook on Australian banks to negative, providing investors an impetus to sell both currencies.

REUTERS