Yellen Upstages Greece as Market Shifts Attention to Fed’s Rates

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For the foreign-exchange market, Wednesday is all about Janet Yellen.

The Federal Reserve chair is scheduled to address U.S. lawmakers Wednesday and Thursday in Washington, after saying last week it will likely be appropriate to increase borrowing costs “later this year.” The probability of a Fed boost at its September meeting fell to 33 percent from 35 percent on Monday, according to futures data compiled by Bloomberg. For December, the odds slipped to 67 percent from 69 percent.

An index of the dollar was little changed as investors held back from taking fresh positions before the speech, given recent data showed no price pressure and a decline in retail sales. Greece’s Parliament will vote Wednesday on the measures the nation’s creditors demanded in return for another bailout.

“Between Yellen and Greece, I would say Yellen is more important to the market,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “But the joker in the cards is if the Greek Parliament votes no. We expect her to say rates are likely to move higher, but the economy is not as strong yet as she would like.”

The Bloomberg Dollar Index, which tracks the greenback against 10 major peers, was at 1,194.28 as of 11:39 a.m. London time. The gauge has risen 1.2 percent so far in July.

The dollar advanced 0.2 percent to 123.58 yen. That’s about 2 percent below 125.86 yen reached on June 5, its highest since 2002. The U.S. currency fell 0.1 percent to $1.1021 against the euro.

Normalized Policy

The central bank has held its Fed funds target at virtually zero since December 2008 to bolster economic growth. Last week, Yellen said that she expects it will be appropriate to begin normalizing monetary policy later this year.

“We expect the message on Friday to be maintained in her speech today,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The dollar will stay supported unless she turns dovish by focusing on inflation being well below target.”

Kansas City Fed President Esther George said Tuesday it’s time for the central bank to raise rates.

There’s a “slightly more hawkish tone that we’ve heard from Fed speakers as of late,” said Todd Elmer, a Singapore-based strategist at Citigroup Inc., the world’s biggest currency trader. “We are starting to see some drift forward in terms of the expected timing of the first interest rate hike, and this is translating to dollar appreciation.”

The dollar has risen 2.8 percent against its developed market peers in the past month, making it the best performer after the pound, according to Bloomberg Correlation-Weighted Currency Indexes.

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