News Column

Dollar maintains upper 101 yen level after Yellen rate hike comment

July 16, 2014

Ryotaro Nakamaru

The U.S. dollar held to the upper 101 yen zone Wednesday in Tokyo, maintaining strength gained after U.S. Federal Reserve chief Janet Yellen said further improvement in the labor market could speed up the timing of an interest rate hike.

At 5 p.m., the dollar fetched 101.69-70 yen compared with 101.63-73 yen in New York and 101.56-58 yen in Tokyo at 5 p.m. Tuesday. It moved between 101.64 yen and 101.77 yen during the day, changing hands most frequently at 101.73 yen.

The euro was quoted at $1.3553-3554 and 137.82-86 yen against $1.3563-3573 and 137.93-138.03 yen in New York and $1.3618-3620 and 138.31-35 yen in Tokyo late Tuesday afternoon.

The dollar inherited a rally overnight in New York on Yellen's comments to the U.S. Senate Banking Committee. The U.S. currency relinquished some of those gains as early-bird traders in Europe sold the dollar to lock in gains, said Yuji Kameoka, chief foreign exchange strategist at Daiwa Securities Co.

While reiterating that current economic conditions in the United States called for continued stimulus, Yellen said she expects the Fed to raise its benchmark interest rate from its current near-zero level "sometime in 2015," and that the median estimate by members of the Fed's Open Market Committee saw it reaching 1 percent by the end of that year.

But she also said "if the labor market continues to improve more quickly than anticipated by the committee...increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned."

The U.S. job situation has improved in recent months, with nonfarm payrolls adding an expectation-topping 288,000 jobs in June and the unemployment rate falling to 6.1 percent, its lowest since 2008.

"Yellen has until now been very dovish, so the hint of hawkishness led traders to react" by buying the dollar overnight, said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow.

Yellen is due to give testimony to the U.S. House Committee on Financial Services later Wednesday. "The two testimonies tend to be more or less the same. But of course the Q and A could yield some new comments so it bears watching," Daiwa Securities' Kameoka said.

The euro was flat against the dollar and softened slightly against the yen after a fall against both currencies overnight on the dollar's rise and a weak reading of economic sentiment in Germany.

The ZEW institute's indicator declined in July for the seventh straight month, reflecting falling retail sales and industrial production, the institute said.

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Source: Japan Economic Newswire

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