Dollar Rally Stutters as Traders Wary Yellen to Side With Doves

Dollar bulls have turned cautious after pushing the currency to its best run of gains in two months last week.

Federal Reserve Bank of San Francisco President John Williams doused enthusiasm for the greenback with remarks Monday that while the U.S. economy is doing “quite well,” it’s vulnerable to “global financial and economic developments” -- echoing comments from the Federal Open Market Committee’s statement earlier this month. Dollar bulls had seized on comments by St. Louis Fed President James Bullard and Philadelphia Fed President Patrick Harker that suggested interest rates might rise as soon as April. Fed Chair Janet Yellen will speak at the Economic Club of New York on Tuesday.

“Williams’ comments about overseas factors impacting the U.S. are allowing the U.S. dollar to ease a little,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand in Auckland. “Markets are wary that Yellen will reaffirm the cautious FOMC statement, undermining dollar-specific optimism.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed at 1,197.04 as of 12:39 p.m. in Tokyo from Monday, when it slid 0.4 percent and snapped a six-day gain, the longest rally since Jan. 20.

The U.S. currency was little changed at 113.48 yen, and $1.1199 per euro.

“The Fed is in a bind as it wants to raise rates but doesn’t want the dollar to strengthen, which risks undermining the economy,” said Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If Yellen disappoints, the dollar will face selling pressure.”

--With assistance from Mika Otsuka To contact the reporter on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Jonathan Annells, Nicholas Reynolds

By: Kevin Buckland

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