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 U.S. Treasury yields have fallen and Fed Funds futures show
investors are pushing back policy tightening expectations following
Fed minutes that suggested the central bank was in no rush to hike
rates. So a lot will depend on what Yellen says, particularly on the
back of an improvement in U.S. data in the second quarter.
"Investors are hoping for Yellen to say something substantial. The
Fed, it seems, will tolerate a bit more inflation before it will
tighten rates," Commerzbank currency strategist Peter Kinsella said.
"The key is U.S. yields, and if they are not moving higher, it's
unlikely to translate into anything substantial for the dollar," he
said.
In the euro zone, data showed that industrial production dropped
sharply in May, highlighting the fragile state of the bloc's
recovery.
European Central Bank President Mario Draghi will address a European
Parliament committee in Strasbourg later on Monday, and the single
currency's recent strength against the dollar may be mentioned. ECB
policymakers have in the past said the exchange rate's strength
worsens the disinflationary situation in the euro zone.
The euro was up 0.15 percent at $1.3626, lifted by talk of buying by
long-term investors in London trade, while the dollar was up 0.1
percent against the yen at 101.48 . The euro rose 0.3 percent
against the yen to 138.30 yen, recovering from
last week's five-month low of 137.50 yen.
Investors also have their eyes on a policy review by the Bank of
Japan on Tuesday, though it is widely expected to maintain its
strategy and broader economic outlook.
The BOJ may trim its growth forecast for the current year, sources
familiar with its thinking said, reflecting soft exports and a
bigger-than-expected fall in household spending after a sales tax
hike in April, though the revision would not lead to any policy
changes for now.
Demand for the safe-haven yen faded on Friday as concerns eased
about the health of Portugal's largest bank and its impact on the
euro zone financial system.
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CANADIAN DOLLAR
Speculators increased their bullish bets on the U.S. dollar in the
latest week, with the value of the dollar's net long position rising
to $10.34 billion in the week through July 8, according to the data
from the Commodity Futures Trading Commission released on Friday.
Stephen Gallo, European head of currency strategy at the Bank of
Montreal, said he expected action this week in the Canadian dollar.
The central bank will announce its latest rate decision on
Wednesday, followed by inflation data on Friday.
The Canadian dollar weakened to a more than two-week low against the
greenback late last week after data showed the country's economy
unexpectedly lost jobs last month, solidifying expectations the Bank
of Canada will keep rates unchanged.
The dollar was flat against the Canadian counterpart, trading at
C$1.0736.
Meanwhile, the Australian dollar stabilized, having fallen late on
Friday as the country's central bank chief again said the currency
was too strong.
The Aussie last traded at $0.9396, having dipped as low as $0.9370.
Traders said a slew of Chinese economic data on Wednesday could have
a bearing on the Australian dollar, given the Asian powerhouse is
Australia's largest trading partner.
(Additional reporting by Anirban Nag in London; Editing by Hugh
Lawson)
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