Dollar edges up from one-month low vs yen, focus on Fed speakers

[September 28, 2016]  By Anirban Nag

LONDON (Reuters) - The dollar rose against the yen and a basket of currencies on Wednesday, with the focus shifting to Federal Reserve chair Janet Yellen's semi-annual testimony before a Congressional committee later in the day.

While she is set to focus on financial regulation, traders said she is likely to be asked questions about the Fed's outlook on rates and the economy.

Cleveland Fed President Mester and Kansas City Fed President George are also due to speak on the economy and monetary policy at separate events. Both are seen as hawks by the market after they dissented at the last meeting and voted to raise rates.

The dollar index was up 0.15 percent at 95.550 <.DXY>, and the currency regained ground against the yen. It was up 0.3 percent at 100.70 <JPY=> after setting a one-month low of 100.085 yen on Tuesday.

The euro was flat at $1.1210 <EUR=>, having come under pressure in the previous session on concerns over the health of the European financial system. The euro retreated on Tuesday as share prices in Deutsche Bank, Germany's largest lender, fell to a record low on concerns it may struggle to pay a $14 billion demand from the U.S. Department of Justice.

Deutsche Bank <DBKGn.DE> shares rose on Wednesday on news it has sold its British insurance business Abbey Life to Phoenix Group Holdings, lending support to the single currency.

"While we admit that near-term downside risks to the euro have increased due to financial stability concerns we think that any setback into the $1.11 handle offers a buying opportunity," said Hans Redeker, head of currency strategy at Morgan Stanley.

European Central Bank chief Mario Draghi said monetary stimulus needs to be complemented by action in other policy areas as the central bank is already operating near a "lower bound" where interest rates cannot be cut any more.

FEDWATCH

Across the Atlantic, with investors trimming the possibility of a December hike by the Federal Reserve, traders said upside for the dollar was limited. Money market futures price in a less than 50 percent chance of a rate increase by December, compared to over 60 percent after the Fed's policy meeting last week.

Relatively hawkish comments from Fed Vice Chairman Stanley Fischer on Tuesday did little to alter expectations. Fischer cited better labour market conditions but added that the Fed should avoid raising rates too much, a comment that helped to push down 10-year U.S. bond yields to a three-week low.

Shinichiro Kadota, chief FX strategist at Barclays in Tokyo, said the dollar looks likely to be supported above 100 yen for now, but added he did not see rapid gains.

"Even after some strong U.S. economic data, the dollar couldn't gain much yesterday, which seems to suggest the dollar has limited upside for now," Kadota said.

(Additional reporting by Masayuki Kitano; Editing by Andrew Heavens and Hugh Lawson)

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