The dollar was steady on Thursday as investors stayed on the sidelines before the annual global central bankers’ gathering in Jackson Hole, Wyoming, where Federal Reserve Chair Janet Yellen may offer new pointers on US monetary policy.
Recent hawkish statements by Fed officials, including Vice-Chairman Stanley Fischer and New York Fed President William Dudley, have prompted some investors to raise bets that US interest rates will rise sooner rather than later, and some believe Yellen will echo their signals.
Futures markets were on Wednesday indicating an 18 per cent chance the Fed will hike rates at its policy meeting next month, and a roughly 50 per cent chance of an increase in December, according to CME Group’s FedWatch tool.
The dollar was flat at 100.42 yen, having dipped below 100 yen in recent days. The pair has traded in a narrow 99.55-102.83 band this month.
“Dudley’s hawkish comments have come as a surprise and if Yellen says the US data has been good enough to continue tightening policy, then we could see dollar/yen rally towards the 102 yen mark,” said Richard Falkenhall, currency strategist at SEB.
BoJ additional stimulus
Also weighing on the yen were growing expectations that the Bank of Japan will take additional stimulus steps at its next meeting in September, when it will review its policies against a backdrop of growing doubts that the BOJ's target of 2 percent inflation target is within reach.
Japan’s government kept its assessment of the economy unchanged in August but offered a slightly more downbeat view on consumer inflation than last month, as prices slid on weak household spending and the strong yen pushed down import costs.
A Reuters poll on Thursday showed economist were split over whether the BoJ will ease policy further next month, with about 60 per cent forecasting it will and 40 per cent expecting no change.
Germany IFO survey
The euro was flat at $1.1270 with the focus on the German IFO survey due at 0800 GMT. Given the flow of upbeat business sentiment data in Europe in recent days, the message is again expected to be that confidence is holding up well following June’s Brexit shock.
One said any impact on the common currency was likely to be fleeting, however.
“The recovery in the euro zone is making progress, but is not yet strong enough from the perspective of the European Central Bank,” said Antje Praefcke, currency strategist at Commerzbank.