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Tokyo - The dollar’s best month in more than a year faces one last hurdle: Janet Yellen speaks on Friday and any hint of dovishness could spur a reversal for the greenback.
A gauge of the currency against 10 major peers was set to snap a three-week rally, even after a string of the Federal Reserve Chair’s colleagues signaled their willingness to tighten policy as soon as next month.
The odds indicated by futures of an interest-rate increase at the central bank’s June 14 to June 15 meeting rose as high as 34% this week, almost tripling this month. Evidence is mounting the economy is solid enough to merit Fed action, with a measure of data surprises surging to the highest since the start of last year.
“The dollar rally has stalled,” said Imre Speizer, a markets strategist at Westpac Banking in Auckland. “Yellen’s conversation will be closely watched, but monetary policy guidance is not assured.”
The Bloomberg Dollar Spot Index slipped 0.2% since May 20 as of 08:08, after gaining 3.2% in previous three weeks. It’s still set for the biggest advance this month since January 2015, after gaining against 15 of 16 major currencies. US economic data have exceeded analysts’ forecasts, resulting in the highest reading in the Bloomberg Economic Surprise Index since January 2015.
G-7 statement
The greenback was little changed at ¥109.71, having advanced as much as 0.2% after the communique from the Group of Seven summit meeting in Ise-Shima, Japan, said excessive, disorderly foreign-exchange moves have a bad impact on the economy. Against the euro, the dollar was at $1.1199 from $1.1194 on Thursday, headed for a 0.2% weekly gain.
Japan’s consumer prices dropped for a second month in April as central bank Governor Haruhiko Kuroda struggles to spur inflation with record asset purchases and negative interest rates. The data is the final set of consumer price indicators to be released before the Bank of Japan’s board meets June 15 to June 16.
“There’s been speculation of a big-bang easing in June or July, and that could possibly drive the yen weaker,” Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd., said in a Bloomberg Television interview. “A lot also depends on how the feedback from the Fed’s action affects risk sentiment. That’s going to result in a lot of choppiness in dollar-yen.”
Japan’s currency is set to trade between ¥105 and ¥115/$ in the coming months, Sim said.
Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP, said he expects a dovish speech from Yellen on Friday. The Fed will refrain from raising interest rates in June unless traders in the futures market assign odds of at least 50% to the move, he said Thursday in Beverly Hills, California.
