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 St. Louis Fed President James Bullard's prediction on Monday that
the Federal Reserve was likely to raise rates in September pushed
the U.S. currency higher in Asian trade.
But commodity-linked currencies like the Canadian, New Zealand and
Australian dollars showed more stability, after losing ground as the
dollar rallied this month.
The euro also rose 0.4 percent to $1.0864, in the middle of a range
it has held since late last week. It is still down almost five
percent in the past month.
"It just looks like a bit of a pause today," said a dealer with one
international bank in London. "After weeks of obsessing about
Greece, the debate has definitely turned back to interest rates and
economic fundamentals, but we are facing the summer lull now. I
think that is keeping volumes lower."
Gold prices stabilized after dropping on Monday, helping the
commodity-linked currencies. But minutes from the Reserve Bank of
Australia's latest meeting called for more declines in an Aussie
dollar already at its lowest in six years.
"They are not getting the benefits yet of the weakness we have
already seen in the Aussie and they're still calling for more," said
Ian Stannard, head of European FX strategy at Morgan Stanley in
London.
The RBA line differed from New Zealand's, where Prime Minister John
Key offered the currency some verbal support on Monday, and the
Aussie's flat performance at $0.7374 contrasted with a half a
percent rise in the kiwi to $0.6605.
Sterling, the other currency to gain from expectations interest
rates will rise soon, was flat against the dollar but 0.4 percent
down against the euro. Attention was shifting to Wednesday's Bank of
England minutes, which analysts think may show some policymakers
moving towards raising rates around the end of this year or early
next.
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There are contradictions in all of these positions. If the euro is
to remain weak against the dollar, it will be because of loose
monetary policy aimed at propping up an economy still struggling for
growth. Yet that should hurt the UK.
Likewise, the weakness of the Aussie, Kiwi and other currencies that
depend on commodity prices for direction is due in large part to a
slowdown in China -- which should also have an effect on the U.S.
economy.
The dollar was steady at 124.37 yen, having hit a five-week high of
124.48 late in the Asian session. The dollar index against a basket
of currencies dipped 0.2 percent to 97.823 after extending this
week's three-month peak to 98.151.
(Additional reporting by Shinichi Saoshiro; Editing by Larry King)
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