US dollar wavers, poised for weekly gains ahead of Yellen speech

[TOKYO] The US dollar remained on tenterhooks on Friday, ahead of Federal Reserve Chair Janet Yellen's highly anticipated speech later in the session that some believe could provide clarity on whether US interest rates are headed higher this year.

The US dollar index, which gauges the greenback against a basket of six major counterparts, edged down 0.1 per cent to 94.718, on track for a modest gain of 0.2 per cent for the week.

Ms Yellen will deliver the keynote speech at a global central bank gathering in Jackson Hole, Wyoming. She could send a clear signal that the Fed is gearing up for a hike this year, though many analysts believe she will stick to her less concrete stance that monetary policy is data-dependent and a hike is possible.

"The anticipation is a bit too much. She is one of the more pragmatic and balanced speakers," said Jennifer Vail, head of fixed income research at US Bank Wealth Management in Portland, Oregon.

"I think she will leave the door open for a rate hike sometime this year, but I don't see the Fed actually moving until December," she said.

Regional Fed presidents have pushed a hawkish message in recent weeks, which Ms Vail said showed they were "trying to get the market expectations close to where the Fed is headed, so when they do execute, it's not a shock to the rates market."

Kansas City Fed President Esther George said on Thursday that it is time for the Fed to raise US rates gradually, given progress on employment and inflation.

"The issue of overheating of the economy is being discussed within the Fed board," Fed Vice Chair Stanley Fischer told a room of labour activists who met with Fed officials to press them not to raise interest rates.

"Everything that's being argued here is being argued in the board as well," said Mr Fischer.

Data overnight reinforced recent upbeat assessments of the US economy. New orders for US manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up, while the number of Americans filing for unemployment benefits unexpectedly dropped.

After the release of the US data, futures markets were indicating a 24 per cent chance the Fed will hike rates at its policy meeting next month and a roughly 57 per cent chance of an increase in December, according to the CME Group's FedWatch.

The US dollar was flat against the yen at 100.51 yen, and also steady against the euro at US$1.1289. It was on track for a 0.3 per cent rise against the former and a 0.2 per cent dip against the latter for the week, with major currency pairs largely rangebound ahead of Ms Yellen's speech.

Japanese data released early on Friday added to evidence that the Bank of Japan has reason to increase its stimulus next month, as the economy slips back toward deflation.

Japan's core consumer prices fell for a fifth straight month and marked the biggest annual drop in more than three years in July, government data showed on Friday, keeping the central bank under pressure to expand an already massive stimulus programme.

REUTERS