Dollar bounces back on 2015 rate hike bets; Yellen to speak later

[March 27, 2015]  By Jemima Kelly

LONDON (Reuters) - The dollar rose across the board on Friday, extending a rebound begun the previous day after Federal Reserve officials signaled they were still on track to raise interest rates this year.

At separate events on Thursday, two senior Fed policymakers said a move away from ultra-loose monetary policy might be needed in light of the U.S. economy's steady improvement since the 2007-2009 financial crisis.

Those comments, as well as strong U.S. jobs and service sector data, helped the dollar recover after losing as much as 4 percent against a basket of currencies since the Fed trimmed its growth and inflation forecasts in its policy statement last week

Traders are now awaiting a speech by Fed Chair Janet Yellen at 1545 EDT to see whether she strikes a similarly hawkish tone to that of her colleagues, as well as the final reading of fourth quarter U.S. GDP, due at 0830 EDT.

Against the yen, the dollar climbed 0.2 percent to 119.455, with the Japanese currency hurt by data showing core consumer inflation ground to a halt in February.

"The poor inflation data out of Japan seemed to be really igniting expectations of more QE from the Bank of Japan, which has carried dollar/yen higher - that might have spilled over through the crosses into broader dollar strength," said Adam Cole, head of FX strategy at RBC Capital Markets in London.

Providing welcome relief for dollar bulls, data on Thursday showed the number of Americans filing new claims for jobless benefits fell more than expected last week. A separate report showed activity in the services sector at a six-month high in March.

The greenback was 0.2 percent higher against the basket on Friday at 97.568, still a long way off its 12-year peak above 100 struck two weeks ago but around 1.5 percent up from the previous day's low.

Against the euro, the dollar gained 0.3 percent <EUR=> to $1.08545, having risen 0.8 percent after Thursday's U.S. data and Fed comments.

"It's pretty clear that the market psychology is still to buy the dollar on dips," said Alvin Tan, a currency strategist at Societe Generale in London.

Sterling was trading higher against both the dollar and the euro, boosted after Bank of England Governor Mark Carney re-iterated that the next move in interest rates is likely to be up.

(Editing by Mark Trevelyan)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.