Federal Reserve Speakers Turn Hawkish Rallying The US dollar

A shift in attitude by a bevy of Federal Reserve speakers this week has reversed the course of the US dollar. The greenback added 13 points in the morning session to trade at 96.19 after falling just days ago to the 94 level after the FOMC decision earlier this month. The dollar climbed to a one-week high against a basket of currencies on Thursday while awaiting data due later in the session that could back some Federal Reserve officials’ relatively optimistic views on the U.S. economy. The dollar gained overnight against a basket of major currencies after St. Louis Federal Reserve Bank President James Bullard suggested there was a chance that interest rates could be raised in April.

Economic indicators due later on Thursday include the U.S. durable goods orders and jobless claims data. Upbeat readings would help support the case for the Fed to steadily tighten monetary policy.

“The hawkish comments from Fed officials have helped, but participants adjusting their positions before the Easter weekend also appear to be supporting the dollar,” said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

The dollar was up 0.4 percent at 112.795 yen and near a six-day high of 112.905 overnight. The greenback retreated to a 17-month low of 110.67 last week after the Fed reduced its rate hike projections for this year. This morning saw the release of the Bank of Japan meeting minutes. Bank of Japan policymakers engaged in heated debate on the pros and cons of their decision in January to adopt negative interest rates, with one even saying it was preferable to roll it back, a summary of their opinions at the March 14-15 rate review showed on Thursday.

“It’s preferable to roll back the negative rate policy. But abandoning it immediately after introducing it would cause market confusion and risk eroding trust in the BOJ. With the effects (of the policy) still not clear, we should maintain the policy,” one of the nine board members was quoted as saying.

Another board member said rolling back the policy was “out of the question” as markets were already moving on the assumption that negative rates would remain in place, the summary showed.

The BOJ unexpectedly cut a benchmark interest rate to minus 0.1 percent in January as it stepped up its faltering efforts to revive growth and pull Japan out of years of deflation.

“The euro may be slow to shrug off the impact of the terror attack, given potential for investors to price in a higher political risk premium associated with the ongoing drift towards the wings and away from centrist parties,” wrote Todd Elmer, Citi’s Asian head of G10 FX strategy.

The blasts in Belgium were seen as exacerbating the possibility of Britain leaving the European Union, further undermining the euro.

The prospect of Britons voting for a “Brexit” at a June referendum has also struck the pound, which traded near $1.4081 a one-week low plumbed overnight. Sterling will look to the U.K. retail sales numbers to be released later in the session for immediate cues.

The AUD and NZD both dipped this morning on a stronger US dollar. The kiwi’s losses were limited after the trade balance printed better forecast. The kiwi was trading at 0.6697. New Zealand posted a bigger trade surplus than expected in February, as exports were bolstered by a $267 million drilling platform.

Investors were also cautious ahead of the Good Friday and Easter holidays. In the Asia-Pacific region, stock markets in Hong Kong, Australia, New Zealand, Indonesia and Singapore will close Friday. U.S. stock markets will also close.