Dollar halts slide on Fed rate hike talk

Tokyo - The dollar halted its slide in Asian trade on Wednesday after a senior US central banker said overnight that an interest rate raise could come as early as next month.

William Dudley, the influential head of the Federal Reserve's New York branch, unexpectedly hinted that a rate hike was possible as early as September.

Analysts said the comments from Dudley - who remarked that Wall Street investors were too "complacent" about the prospect of higher borrowing costs over the next year - halted the US unit's fall in Asia.

The greenback had briefly dived under the 100 level against the safe-haven Japanese currency in New York for only the second time this year, touching as low as 99.54 at one stage.

"While Dudley was at least able to stem the bleeding for the dollar index, price action is not encouraging for the dollar near term," Sean Callow, a Sydney-based senior foreign-exchange strategist at Westpac Banking Corporation, told Bloomberg News.

"Still, so long as a rate hike seems more likely than not as the Fed's next move, we wouldn't get super bearish on the dollar."

In Tokyo morning trade, the greenback climbed to ¥100.57 from ¥100.30 on Tuesday in New York.

The euro rose to ¥113.46 from ¥113.10 in US trade, as another Japanese official hinted at a possible bid to weaken the yen.

Japan's currency has been on a tear since wild market volatility at the start of the year pushed investors into the currency, seen as a safe bet in times of turmoil.

The rally picked up after Britain's vote to quit the European Union sent shivers across world markets.
But a stronger currency is generally bad for Japan’s profits.

The sharp rise has prompted a string of warnings from Japanese officials that they might intervene in markets to weaken the currency.

Japan's top currency official, Masatsugu Asakawa, told reporters on Wednesday that Tokyo could respond to the "excessive moves" in forex markets.

However, analysts said the bid to talk down Japan's currency might be wearing thin, while a market intervention threatens to put Japan on a collision course with its G7 counterparts, which have pledged not to interfere with exchange rates.

"This morning, Asakawa was again dishing out the well-worn Japanese policymakers verbal intervention, 'moves are rough', rhetoric and hinting that the BoJ is in touch with other G7 sympathetic to Japan's cause," Stephen Innes, senior trader at forex firm OANDA, said in a commentary.

In other trading, the euro rose to $1.1281 and from $1.1276.

The dollar rose against higher-yielding emerging currencies, including the Singapore dollar, South Korea's won, the Indonesian rupiah, Philippine peso, Thailand's baht and the oil-reliant Malaysian ringgit.

Read Fin24's top stories trending on Twitter: Fin24’s top stories