Yen suffers as eyes shift to Fed speakers

[June 19, 2017]  By Patrick Graham

LONDON (Reuters) - The differing messages of the world's major central banks on inflation and monetary policy prodded the dollar and euro higher against the yen on Monday, with traders eyeing a series of appearances by U.S. Federal Reserve officials this week.

Fed chief Janet Yellen's confidence as her team raised interest rates for the third time in six months last week surprised investors who had expected more caution about the economy.

There are signs, however, that the market does not believe Fed forecasts that show it will be able to continue raising rates later this year and any signs of doubt from other Fed officials speaking this week may hurt the dollar.

The dollar was up just under 0.1 percent against the basket of currencies that measures its broader strength. <.DXY>

"I think that the burden of proof for the dollar (to appreciate) is pretty high," said Jeremy Stretch, head of currency strategy at CIBC in London.

"Even if there isn't going to be any outright criticism of Yellen, if you don't think U.S. (10-year government bond) yields are going to be above 2.20 percent then it is tough to buy into it."

U.S. market interest rates point to a less than 40 percent chance of the Fed hiking rates by December and data on Friday showed investors had further reduced net bets on the dollar gaining ahead of last week's Fed meeting.

Friday's Bank of Japan meeting, however, played down even the chance of it beginning to reduce emergency stimulus for the economy and the yen was again weak on Monday, down 0.2-0.3 percent against the dollar and euro. <JPY=> <EURJPY=>

Against the dollar, the euro was 0.1 percent lower at $1.1185 <EUR=> after gaining about 0.5 percent on Friday, taking little from French President Emmanuel Macron's landslide in parliamentary elections on Sunday.

U.S. Dollar and Japan Yen notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

Polls had widely favored Macron and interest in French politics has declined since the risk of a far-right president who might take the country out of the euro abated with his defeat of Marine Le Pen last month.

Sterling was steady ahead of the formal start of negotiations on Britain's planned exit from the European Union, expected by many analysts to generate negative headlines for the currency in the weeks ahead.

"While medium-term (sterling) appreciation is still likely, the tail risks of a no-deal or disorderly Brexit scenarios have increased, and should weigh on (the pound)," currency strategists from Barclays wrote in a note to clients.

Prime Minister Theresa May is also still struggling to secure the support of Northern Ireland's DUP party she needs to proceed as a minority government after losing her majority 10 days ago.

The pound was little changed at $1.2796 <GBP=D3>

For a graphic on world FX rates in 2017, click http://tmsnrt.rs/2egbfVh

(Additional reporting by Masayuki Kitano in SINGAPORE and Shinichi Saoshiro in TOKYO Editing by Jeremy Gaunt)

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