Dollar rally stalls as Yellen takes centre stage at Jackson Hole
London (Aug 22) The dollar hovered below its 2014 peak against a basket of major currencies on Friday, as investors cautiously trimmed favourable bets and booked profits ahead of a speech by U.S. Federal Reserve Chair Janet Yellen.
The dollar index slipped to 82.106, having risen as high as 82.364 on Thursday, a level last seen in early September. It was still up 0.8 percent so far this week and on track for its best weekly gain since March. Upbeat U.S. housing data and hawkish-sounding Fed minutes have combined to give the dollar a boost.
"Some of those who held long dollar positions before have probably taken profits since yesterday," said Lutz Karpowitz, currency strategist at Commerzbank.
He said those who missed the dollar rally are likely to hold off now until there are fresh cues from an annual gathering of central bankers at Jackson Hole, Wyoming, where Yellen will give her speech.
The topic of this year's symposium is "Re-Evaluating Labor Market Dynamics".
Last month, Yellen stressed there was significant slack in labour markets, prompting markets to push back the timing of the first interest rate hike. A dovish speech from Yellen would counter this week's Fed minutes that showed policymakers debating whether rates should be raised earlier or not.
This week's rally left the dollar on the verge of breaking above its April peak of 104.13 yen, a move that could open up the way to 105.45, set in January, traders said. The dollar eased to 103.70 yen, not that far from a 4-1/2 month high near 103.97 yen on Thursday.
"Anything remotely less dovish than expected from Yellen should lift the dollar, and dollar/yen will be the front-runner there," said Jesper Bargmann, head of trading for Nordea Bank in Singapore.
DRAGHI ALSO TO SPEAK
The euro was also firmer, trading at $1.3280 and staying away from an 11-month low of $1.3242 struck on Thursday. European Central Bank President Mario Draghi is also due to give a speech at Jackson Hole on Friday.
The common currency has shed 0.8 percent this week as the dollar rallied. Falling German bund yields that have widened the rate gap over U.S. Treasuries, lower money market rates and a narrowing euro zone current account surplus have all combined to push the euro lower.
Traders said the dollar could slip if Yellen sounds dovish, but added that any fall was likely to be mild.
"There could be some profit-taking, but at the same time I think the profit-taking could be quite shallow," said Sim Moh Siong, FX strategist for Bank of Singapore, referring to the outlook for the dollar against the yen.
One factor that could help temper gains in the dollar against the yen is the lack of a significant rise in U.S. bond yields.
The U.S. two-year Treasury yield last stood at around 0.47 percent. While the two-year yield has edged up from a two-month low hit last Friday, it remains below a three-year high of 0.59 percent touched in late July