All quiet before Yellen: US dollar dips as Fed speech approaches
Frankfurt (Aug 26) The dollar inched down on Friday to leave it little changed on the week, with investors focused on a speech later in the day by the chair of the Federal Reserve that may signal whether U.S. interest rates will rise this year.
Janet Yellen's keynote address at a global gathering of central bankers in the U.S. mountain resort of Jackson Hole is due at 1400 GMT.
She may send a clear signal that the Fed is gearing up for an increase this year. Many analysts expect, though, that if she speaks about monetary policy she will take a more equivocal line - that it is data-dependent and a rate hike this year is just a possibility.
Futures markets are pricing in only around one chance in five rates will rise in September, and around a 50 percent chance of at least one increase by the end of the year, according to CME FedWatch. Any clear signal that a 2016 hike is on the cards could therefore send the greenback surging.
The dollar index, which measures the currency against a basket of six major counterparts, edged down 0.1 percent to 94.663 .DXY, roughly where it started the week.
"It's been a bit choppy this week – it's a classic summer market and people are wanting to get a theme for the rest of the year but are maybe a bit wary of doing that before Yellen speaks today," said HSBC currency strategist Dominic Bunning, in London.
"If (Yellen) does speak about monetary policy, she'll try to keep a hike this year on the table. But I don't think she'll be particularly hawkish – our view is that they (the Fed) don't hike this year."
Commerzbank's head of foreign exchange research in Frankfurt, Ulrich Leuchtmann, said he saw more of a risk of a negative surprise for the greenback from the speech.
"For the best part of this week there was a sense that Jackson Hole might bring something useful on policy, but this shifted yesterday and for good reason, because I don't think the Fed has any incentive to make a big hawkish announcement," he said. "They are so data-dependent.
Data overnight reinforced recent upbeat assessments of the U.S. economy. New orders for manufactured capital goods rose for a second straight month in July, while the number of Americans filing for unemployment benefits unexpectedly dropped.
The dollar inched down 0.1 percent to 100.46 yen JPY=.
Japanese data released early on Friday added to evidence that the Bank of Japan has reason to increase its stimulus next month, as the economy slips back toward deflation.
Source: Reuters
