Dollar climbs, traders await Yellen speech for Fed clues

[LONDON] The dollar index rose on Friday, on track for its strongest monthly performance since last November amid expectations the Federal Reserve may raise rates in coming months and investors awaiting fresh guidance from the head of the US central bank.

The index was up 0.1 per cent at 95.259, having pulled back from Wednesday's two-month peak of 95.661, with month-end rebalancing flows by asset managers likely to limit the gains, traders said. Holidays in Britain and the US are likely to curtail volumes on Monday.

The dollar is still up 2.3 per cent this month, among the top performing currencies, after a string of Fed officials raised expectations for a hike in interest rates as early as June.

"We will see some consolidation in the dollar after the recent gains with expectations of a June hike still in play," Nomura currency strategist, Yujiro Goto, said. "Next week is a big one with US non-farm payrolls and ISM (Institute for Supply Management) data, so investors are awaiting for more data," Mr Goto said.

Fed Chair Janet Yellen is due to speak at an event hosted by the Harvard University at 1715 GMT. Her speech comes after a slew of Fed policymakers from John Williams to Bill Dudley and James Bullard all sounded relatively hawkish.

"I'm not sure how concerted this whole thing has been. If it's all kind of planned or if it's just individual members speaking," Nordea Bank head of trading, Jesper Bargmann, said, referring to the Fed officials' comments. "This is her chance if she wants to give a hint," Mr Bargmann said, referring to Ms Yellen's speech.

As recently as early May a Fed rate hike in June was completely off the agenda. But after a string of good data and the comments from Fed officials the likelihood of a rate hike based on the Fed funds futures has reached around 30 per cent. Expectations have eased a bit in the past day, but most remain confident that the Fed will hike over the summer.

Traders will also eye the second estimate of the March quarter US gross domestic product. Analysts polled by Reuters expect to see an upgrade of the earlier reading, which showed the economy grew at its slowest pace in two years.

The euro eased to US$1.1180, staying above Wednesday's two-month trough of US$1.1129. The dollar was flat against the yen at 109.70, still down from last Friday's three-week high of 110.59 yen.

There was little reaction to the outcome of a two-day G7 summit. The G7 industrial powers pledged on Friday to seek strong global growth, while papering over differences on currencies and stimulus policies.

The yen showed limited reaction to media reports that Japanese Prime Minister Shinzo Abe is considering delaying a sales tax hike, originally planned in April 2017, by about two years.

If Japan were to delay the planned sales tax hike, some market participants say the initial reaction may be for Tokyo shares to rise, which could weigh on the safe-haven yen.

REUTERS