Dollar Gauge Near 6 1/2-Week High as Yellen May Clarify Liftoff

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  • Yellen to speak after Fed officials pointed to move this year
  • Yen strengthens as Japan's stocks drop after three-day holiday

The dollar was near its strongest level in 6 1/2 weeks against major peers before a speech from Janet Yellen that may clarify whether the Federal Reserve chair favors an interest rate increase this year.

The Bloomberg Spot Dollar Index has climbed 1.3 percent in the past three sessions as central bank officials including Atlanta Fed President Dennis Lockhart argued that a tighter policy rate is still warranted this year. Japan’s currency gained after falling stocks in Tokyo spurred demand for haven assets as traders returned from a three-day national holiday.

“The dollar is resilient and the yen’s gain is limited despite the risk-off sentiment and the decline in Japanese stocks,” said Jun Kato, senior fund manager in Tokyo at Shinkin Asset Management Co. “Investors are increasingly taking a wait-and-see stance, not knowing what to do. Today’s dollar-yen moves amid risk aversion is symbolic of this indecisiveness”

The Bloomberg Dollar Spot Index was at 1,215.62 as of 6:45 a.m. in London from 1,217.00 in New York, where it completed four days of gains. The gauge touched 1,217.89 on Wednesday, the most since Aug. 7. The U.S. currency fetched $1.1193 per euro from $1.1186.

The yen gained 0.3 percent to 119.98 versus greenback and added 0.2 percent to 134.29 per the euro. Japan’s equity market reopened Thursday, catching up with losses in overseas shares earlier this week. The MSCI Asia Pacific Index dropped 0.7 percent and the Nikkei 225 Stock Average slid 2.3 percent.

Risk Off

“We’re seeing risk-off trade on back of weakness in stocks,” said Tsutomu Soma, department manager of the fixed-income business unit at Rakuten Securities Inc. in Tokyo. “Even though the Fed remained pat in the last FOMC, the uncertainty remains.”

Futures show a 41 percent chance that the Fed will announce its first rate increase since 2006 in December and 65 percent odds of a March liftoff. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first gain. The Federal Open Market Committee held off on Sept. 17, showing a reluctance to move at a time of market turmoil, rising international risks and slow inflation at home.

Yellen Speech

Yellen, who will give a lecture at the University of Massachusetts on Thursday, will portray last week’s policy decision as the Fed buying “a little insurance,” Michael Feroli, economist at JPMorgan Chase & Co., wrote in a note to clients.

“If Yellen is speaking on behalf of her own view, rather than the collective, then I think she should give off an impression similar to what Lockhart’s been saying, that December is on the table,” said Chris Weston, chief markets strategist in Melbourne at IG Ltd. “If we can get some clarity around her own personal stance, then we might see some further upside in the U.S. dollar.”

New Zealand’s currency gained against Australia’s for a third day as Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, raised its forecast milk payout to the nation’s farmers. The kiwi rose 0.4 percent to NZ$1.1117 per Australian dollar, adding to a 1.1 percent two-day gain.