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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 U.S.
interest rates will rise sooner rather than later, and some
believe Yellen could echo their signals.
Futures markets were on indicating an 21 percent chance the Fed
will hike rates at its policy meeting next month and a roughly
50 percent chance of an increase in December, according to CME
Group's FedWatch.
But data of late has pointed to sluggish productivity and
subdued inflation, suggesting the Fed could stay on hold for
longer. The uncertainty over whether Yellen would flag another
rate hike or not was enough to keep most investors on the
sidelines and the dollar subdued.
"Markets continue to dither as we await Yellen's speech. The Fed
chair may have little to say on the near-term prospects for a
rate hike, which could see the market knee-jerking one way or
the other," said John Hardy, head of FX strategy at Saxo Bank.
The dollar was a tad weaker at 100.40 yen <JPY=>, having dipped
below 100 yen in recent days. The pair has traded in a narrow
99.55-102.83 band this month, but some traders said it could
stage a rally if Yellen laid the ground for a rate hike.
"Dudley's hawkish comments have come as a surprise and if Yellen
says the U.S. 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.
The yen could also come under pressure on 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 economists were split over
whether the BOJ will ease policy further next month, with about
60 percent forecasting it will and 40 percent expecting no
change.
The euro was higher at $1.1295 <EUR=>, sidestepping a weak
German IFO survey. The survey showed German business morale
deteriorated sharply in August posting the steepest monthly drop
since the height of the euro zone debt crisis in 2012, as the
Brexit shock weighed on sentiment among executives.
(Editing by Mark Heinrich)
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