US dollar holds climb as odds of Fed hike increase, Yen nurses drop

[SYDNEY] The US dollar held near a two-week high after Federal Reserve officials fueled bets that the US central bank may lift interest rates as soon as next month, while the yen maintained losses as Bank of Japan Governor Haruhiko Kuroda reiterated a readiness to ease policy further.

Japan's currency slipped 0.1 per cent to 101.96 per dollar as of 6.29am in Tokyo, after losing 1.3 per cent on Friday, its biggest single-day drop in more than six weeks.

The dollar also gained 0.1 per cent against Europe's common currency, to US$1.1184 per euro. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, last week notched up its biggest gain since early May.

Fed Chair Janet Yellen said at a central bank retreat in Jackson Hole, Wyoming, that the case for tightening US monetary policy had strengthened, a message later energised by Vice Chairman Stanley Fischer, who said a rate increase in September is possible.

Futures indicate a 42 per cent chance that the Fed will raise rates as early as next month, up from 22 per cent a week earlier, with US economy watchers turning their attention to payrolls data later this week.

Meanwhile, the BOJ chief said he would bolster stimulus "without hesitation."

"Friday's gain in the dollar, driven by Fed Reserve leaders, is expected to be sustained this week and the market could be fairly quiet as we approach Friday's US employment report," said Jason Wong, a currency strategist at Bank of New Zealand in Wellington.

"With most other central banks clearly in the mood to ease, the Fed may still be cautious in its approach to guard against the negative effects of the dollar strength on the global economy."

BLOOMBERG