* Dollar under broad pressure as markets scale back Fed hikes
* Yellen highlights external risks, stresses caution
* China PMI & U.S. payrolls on Friday major risks ahead
By Ian Chua
SYDNEY, March 30 (Reuters) - Dollar bulls were on the defensive early on Wednesday after yet another setback inflicted by Federal Reserve chair Janet Yellen, whose cautious tone left markets wondering if there will be even one hike in U.S. interest rates this year.
In a speech to the Economic Club of New York, Yellen stressed the need to be cautious in raising rates and highlighted external risks including low oil prices and slower growth abroad. stance was in contrast to those of some of her colleagues who last week suggested another tightening may be around the corner. Fed fund futures 0#FF: now have barely a quarter-point hike priced in for this year.
"Such a cautious stance suggests a rate hike in April is unlikely, and there are increased doubts that the Fed will be ready to move in June," said Sean Callow, senior currency strategist at Westpac Bank.
As a result, the dollar index .DXY slid 0.8 percent in its biggest one-day fall in nearly two weeks. It was steady at 95.160 early in Asia, languishing near the overnight trough of 95.089.
"Just when you thought the Fed was attempting to walk back some of the overt dovishness at the March FOMC via a plethora of more hawkish sounding Fed-speak recently, Fed Chair Yellen delivers a speech that doubled down on the dovish rhetoric and then some," Tom Porcelli, chief U.S. economist at RBC Capital Markets wrote in a note to clients.
The greenback dipped to 112.79 yen JPY= , recoiling from a two-week high of 113.805. It also lost ground on the euro, which briefly popped back above $1.1300 EUR= , nearing the March peak of $1.1342 set around two weeks ago.
Commodity currencies also gained ground with the Australian dollar back above 76 U.S. cents AUD=D4 and not far off an 8-1/2 month peak of $0.7681 set earlier in the month.
Sterling broke above $1.4400 GBP=D4 , pulling further away from a seven-year trough of $1.3836 set a month ago as the market put aside "Brexit" jitters for now. It was last at $1.4385.
With Yellen seemingly putting external risks on a par with domestic factors in the bank's policy deliberations, China's manufacturing survey and U.S. nonfarm payrolls on Friday could trigger a fresh bout of market volatility.