US dollar rises from one-week low as taper bets grow

London

THE US dollar rose from one-week lows on Thursday, supported by US Treasury yields holding near 1.35 per cent in a quiet market where focus was firmly trained on what signals the Federal Reserve might send at its annual Jackson Hole conference.

The conference kicks off later in the day in virtual format, but the main event is Fed boss Jerome Powell's speech on Friday where he is widely expected to signal when the central bank could start unwinding its monetary stimulus.

Bond markets sold off heavily on Aug 25, partly on the back of investors hedging their bets ahead of the speech, taking 10-year Treasury yields to almost two-week highs.

The dollar index, which measures the currency against six rivals, inched up to 92.86 after dropping to 92.801 for the first time since Aug 17. Against the euro, it was at US$1.1775, matching Aug 25's one-week low.

Currency market swings have also eased ahead of the speech, with implied euro-dollar volatility at a one-week low. Markets are assessing how the Fed will react to signs that inflation could be less transitory than it had flagged and whether it will stick to its new policy framework of letting inflation run hot.

While Mr Powell has held a dovish tone, there are clear signs of dissent within the Fed.

"The last time FX markets moved a long way was after the June FOMC meeting. It suddenly seemed as if the new Fed is quite similar to the old one, in that they will hike rates at the first sign of inflation," Mizuho senior economist Colin Asher said. Mr Asher noted that while strong global economic growth indicated a softer dollar, the Fed stance would be key.

Signals of a taper starting this year had lifted the dollar index to a 91/2 month high of 93.734 on Aug 20.

But that was before Dallas Fed president Robert Kaplan, among the most forceful advocates for starting to reduce support for the economy, said he may adjust his view if the coronavirus slows economic growth materially.

The greenback slipped 0.15 per cent to the yen but the pair is meandering near the centre of its trading range since early July.

Meanwhile, more central banks worldwide are exiting or contemplating exiting from ultra-easy accommodative policies.

South Korea's central bank on Thursday raised interest rates for the first time in three years The won gave up initial gains, however, to fall 0.6 per cent after the hike which had been well-flagged. REUTERS