Dollar supported as spotlight falls on monetary policy, inflation puzzle

World
Europe

The dollar was buoyant against the yen on Friday as some participants bought back the currency to square positions ahead of a meeting of central bankers in Jackson Hole, Wyoming.

While Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are expected to stay on script in speeches later in the day, investors are hungry for any clues on further US rate rises, the timing of its balance sheet tapering and whether Europe is still looking to rein in stimulus.

Janet Yellen's term as Federal Reserve chair ends early next year /Reuters Photo

Yellen is due to give a speech at 1400 GMT and Draghi will speak at 1900 GMT.

The US currency was a shade firmer at 109.640 yen after gaining 0.5% overnight.

The greenback was poised to end 0.3% stronger against the yen on the week, during which it had slipped to as low as 108.635 yen on geopolitical tensions stemming from the Korean Peninsula.

“The theme at Jackson Hole this year is ’fostering a dynamic global economy’ and as such a general title suggests, the market may not get the immediate hints on interest rates it is eager to hear,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

VCG Photo

But as a precaution some speculators appeared to have bought back the dollar before Jackson Hole, resulting in the dollar/yen’s rise, Ishizuki said.

Price data from Japan highlighted what could be a major topic of discussion at the central bankers’ gathering. Japan’s core consumer prices inched up for a seventh straight month in July from a year earlier, but the gain was a tepid 0.5% and driven largely by higher fuel bills. The yen showed little reaction.

The euro was 0.05% lower at 1.1796 US dollar following a subdued overnight session, during which it was bound to a tight 1.1818 US dollar to 1.1784 US dollar range, which was on track to end the week with a 0.3% gain.

AFP Photo

The euro has gained nearly 14% against the dollar this year and some observers were focusing on whether Draghi would choose to talk down the currency’s strength.

“Surprises from Jackson Hole, if any, would probably come from Yellen rather than Draghi, and any impact on the euro would come from moves in the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“Market expectations for a December Fed rate hike have sunk quite low and there is room for improvement.”

The dollar index against a basket of six major currencies stood little changed at 93.299 .DXY after nudging up 0.15% overnight on the back of a rise in U.S. Treasury yields.

11158km

Source(s): Reuters