US dollar steadies on Fed rate talk, sterling options soar

[TOKYO] The US dollar steadied on Wednesday, underpinned by hawkish comments from US Federal Reserve officials as Asian investors reacted to overnight news of attacks in Brussels.

Attacks on Brussels airport and a rush-hour metro train in the Belgian capital, which occurred late in Tuesday's Asian session, killed dozens and triggered security alerts across western Europe.

The US dollar index, which tracks the US currency against six major rivals, inched about 0.1 per cent higher to 95.758.

The euro edged down about 0.1 per cent to US$1.1207, though it was well above its post-attack low of US$1.1188.

The US dollar was nearly flat against the perceived safe-haven yen at 112.43.

It remained above Tuesday's low of 111.38 yen as well as a 17-month low of 110.67 touched last Thursday after Fed chair Janet Yellen took a cautious tone on the timing of interest rate hikes this year.

"The market learned Fed officials can support the dollar, overall, and market is focusing on what they say, after what Yellen said last week pushed it lower," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

Philadelphia Fed President Patrick Harker said late on Tuesday that the central bank should consider another interest rate hike as early as next month if the US economy continues to improve, and said he would prefer at least three hikes before year-end.

Chicago Fed President Charles Evans said he expects two more rate increases this year, unless economic data comes in a lot stronger than expected or inflation picks up faster than anticipated.

Mr Evans does not have a vote on policy this year, but he is known as one of the US central bank's most dovish policymakers. His remarks followed comments from three other Fed officials on Monday that all suggested interest rate increase could be on the way sooner rather than later.

"Evans normally leans towards lower rates so it is interesting that he is happy to talk about two hikes this year, with markets only priced for one," Sean Callow, senior currency strategist at Westpac, said in a note.

Sterling edged down 0.1 per cent to US$1.4195 after falling more than one per cent to one-week lows against the US dollar following news of the attacks, on fears that more voters would favour Britain leaving the European Union in a June referendum.

Three-month sterling options, covering the period that includes the upcoming "Brexit" vote on June 23, soared to their highest level since mid-2010, as investors bet on or hedged against a further downward move.

The Australian dollar, which usually sells off in times of heightened risk aversion, edged down around 0.1 per cent to US$0.7613.

REUTERS