Dollar slips as investors await Yellen's speech

London

THE US dollar eased on Thursday as some investors sold the currency before the annual global central bankers' gathering in Jackson Hole, Wyoming, where Federal Reserve chair Janet Yellen may offer new pointers on US monetary policy.

Recent hawkish statements by Fed officials including vice-chairman Stanley Fischer and New York Fed president William Dudley have prompted some investors to raise bets that US interest rates will rise sooner rather than later, and some believe Ms Yellen could echo their signals.

Futures markets were indicating a 21 per cent chance the Fed would hike rates at its policy meeting next month and a roughly 50 per cent chance of an increase in December, according to CME Group's FedWatch.

But data of late has pointed to sluggish productivity and subdued inflation, suggesting the Fed could stay on hold for longer. The uncertainty over whether Ms Yellen would flag another rate hike or not was enough to keep most investors on the sidelines and the dollar subdued.

"Markets continue to dither as we await Yellen's speech," said John Hardy, head of FX strategy at Saxo Bank. "The Fed chair may have little to say on the near- term prospects for a rate hike, which could see the market knee-jerking one way or the other."

The dollar was a tad weaker at 100.40 yen, having dipped below 100 yen in recent days. The pair has traded in a narrow 99.55-102.83 band this month, but some traders said it could stage a rally if Ms Yellen laid the ground for a rate hike.

"Dudley's hawkish comments have come as a surprise and if Yellen says the US data has been good enough to continue tightening policy, then we could see dollar/yen rally towards the 102-yen mark," said Richard Falkenhall, currency strategist at SEB.

The yen could also come under pressure on growing expectations that the Bank of Japan will take additional stimulus steps at its next meeting in September, when it will review its policies against a backdrop of growing doubts that the BOJ's target of 2 per cent inflation target is within reach.

The euro was higher at US$1.1295, sidestepping a weak German IFO survey. The survey showed German business morale deteriorated sharply in August, posting the steepest monthly drop since the height of the eurozone debt crisis in 2012, as the "Brexit" shock weighed on sentiment among executives. REUTERS