Dollar declines before US Fed bankers gather

Markets await signals from Fed chairwoman

THE DOLLAR eased yesterday as some investors sold off the currency before the annual global central bankers’ gathering in Jackson Hole, Wyoming, where Federal Reserve chairwoman 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 Yellen could echo their signals.

Subdued inflation

Futures markets were on indicating a 21 percent chance that the Fed will hike rates at its policy meeting next month and a roughly 50 percent 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 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. 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,” said John Hardy, the head of FX strategy at Saxo Bank.

The dollar was a tad weaker at ¥100.40, having dipped below ¥100 in recent days. The pair has traded in a narrow ¥99.55 to ¥102.83 band this month, but some traders said it could stage a rally if 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 con- tinue tightening policy, then we could see a dollar/yen rally towards the ¥102 mark,” said Richard Falkenhall, a 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 its target of 2 percent inflation is within reach.

Downbeat view

Japan’s government kept its assessment of the economy unchanged this month, but offered a slightly more downbeat view on consumer inflation than last month, as prices slid on weak household spending and lower import costs.

The euro was higher at $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 euro-zone debt crisis in 2012, as the Brexit shock weighed on sentiment among executives.