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Treasury yields rose to their highest since June and rate
futures indicated the market priced in more than a 30 percent
chance of a hike in September, up from 18 percent before Fed
Chair Janet Yellen and her deputy Stanley Fischer spoke on
Friday, according to CME Group's FedWatch tool.
Amid thin volumes in Europe with London markets shut for a
public holiday, the dollar rose 0.5 percent to 102.39 yen <JPY=>,
its highest since Aug. 9. It was last trading at 102.15, still
up 0.3 percent on the day.
Against a basket of major currencies <.DXY>, the dollar hit its
highest in nearly two weeks at 95.724 with the euro <EUR=> down
0.2 percent at $1.1182.
At the Fed's annual gathering for global central bankers in
Jackson Hole, Wyoming, Yellen said the case for an interest rate
hike has strengthened in recent months as the labor market and
economy improved.
She gave no hints on the timing of a hike, but Fed Vice Chair
Stanley Fischer said her speech was consistent with expectations
for possible rate increases this year. Those comments created a
flutter among dollar bulls.
"Fischer confirmed the broad view on the Fed Open Market
Committee that the economy has strengthened of late and that
interest rates should be raised gradually; possibly again next
month if this week's employment report supports a rate rise,"
said Stewart Richardson, chief investment officer at RMG Wealth
Management.
"U.S. rates are likely to rise, whereas the European Central
Bank, the Bank of Japan and the Bank of England are still
looking to ease policy. This policy divergence should be
supportive for the dollar."
In the past few months, the Fed has been swaying back and forth
on whether to raise rates this year, keeping the dollar in
check. Fischer said Friday's non-farm payrolls report for August
was likely to be key on the decision over a hike in the near
term.
Traders said a strong number could see the dollar break out of
its recent ranges.
"If the payrolls figure is strong, the dollar could move toward
a test of the 105 level against the yen," said Mitsuo Imaizumi,
chief currency strategist at Daiwa Securities in Tokyo.
Despite the chorus of hawkish comments from Fed officials in
recent days, speculators trimmed bets on the dollar for a fourth
straight week in the week ended Aug. 23, reducing net
dollar-long positions to their lowest since early July. [IMM/FX]
Concerns about the strength of the U.S. economy remain, and were
underscored by Friday's second estimate of U.S. gross domestic
product that showed second-quarter growth was slightly lower
than previously thought.
(Additional reporting by Lisa Twaronite; Editing by Toby Chopra)
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