Dollar extends gains on Yellen rate comments

The US dollar extended its gains in Asian trading on Monday as markets increased their expectations that the Federal Reserve will likely raise interest rates later this year. Speaking at the Jackson Hole Symposium on Friday, Fed Chair Janet Yellen reiterated the hawkish views of other Fed officials in recent days.

Yellen said the US economy is “nearing the Federal Reserve's statutory goals of maximum employment and price stability”. She added that the “case for an increase in the federal funds rate has strengthened in recent months”. However, Yellen did not provide any clues on the timing of any rate hikes, saying it would depend on the incoming data, but comments from Fed Vice Chair Stanley Fischer that followed Yellen’s speech left the door open for two rate rises this year.

The dollar jumped higher after Yellen’s address and continued its advance at the start of trading in today’s Asian session, climbing above the 102 level against the yen for the first time in two weeks.

The yen was weaker across the board on Monday as it came under pressure from the stronger dollar but comments from Bank of Japan Governor, Haruhiko Kuroda also weighed on the Japanese currency. Speaking in Jackson Hole, Kuroda said inflation expectations in Japan have yet to be anchored at the BoJ’s 2% target, meaning further monetary stimulus may be required.

Commodity-linked currencies came under pressure as commodity prices slipped in the wake of Yellen’s upbeat comments on the US economy. The Australian dollar was down at 4-week lows at 0.7540 against the greenback, while the loonie fell to a 2½-week low of 1.3023 per US dollar.

Crude oil prices were down over 1% on Monday on news that Iraq raised its production and said it would only take part in forthcoming talks to freeze output if it was allowed to increase its market share further. WTI oil futures were last trading at $46.87 a barrel, while Brent crude stood at $49.25 a barrel.

Gold prices steadied in today’s Asian session following the slump on Friday after Yellen’s speech. The prospect of higher US rates has pushed gold prices to a one-month low. The yellow metal was last trading around $1318 an ounce.

In European currencies, the euro and the pound failed to hang on to key levels amid a resurgent dollar. The single currency fell below 1.12 dollars and sterling dipped below 1.31 dollars.

Looking ahead to the rest of the day, it will be a relatively light European session but US data will come into focus in the North American session as the latest personal income and consumption numbers are released.