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FOREX-Dollar index holds steady as markets await Trump's speech and Fed

Published 30/01/2018, 04:44 pm
© Reuters.  FOREX-Dollar index holds steady as markets await Trump's speech and Fed
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* Federal Reserve holds policy meeting on Jan.30-31

* Trump's State of the Union speech due later on Tuesday (Updates prices, adds comments)

By Masayuki Kitano

SINGAPORE, Jan 30 (Reuters) - The dollar held above a recent three-year low against a basket of major currencies on Tuesday, with traders turning their attention to U.S. President Donald Trump's State of the Union speech and a Federal Reserve policy meeting for catalysts.

The dollar rose 0.1 percent against a basket of six major currencies .DXY =USD to 89.430, having pulled up from a low of around 88.43 set last week, its weakest level since December 2014.

Analysts said a renewed rise in U.S. bond yields this week lent some support to the dollar. The U.S. 10-year Treasury yield reached a peak of 2.733 percent US10YT=RR in Asian trading on Tuesday, the highest since April 2014, and last stood at 2.712 percent.

The euro eased 0.1 percent to $1.2373 EUR= , edging away from a three-year high of $1.2538 touched last week.

"There is a pause in the dollar's weakness, at least for now," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

Market participants are probably waiting for Trump's State of the Union speech, due later on Tuesday, for anything further he might have to say about the dollar, Ino said.

Treasury Secretary Steven Mnuchin gave U.S. currency bears a major boost last week with a tacit endorsement of a weak dollar. Trump later tried to row back from those comments, saying he ultimately wants the dollar to be strong.

Trump said on Monday he will address his proposed immigration overhaul in his State of the Union speech as well as his efforts to lower trade barriers around the world for American exports. president will also outline his much-anticipated infrastructure plan in the speech. the yen, the dollar eased 0.2 percent to 108.78 yen JPY= , edging back in the direction of a 4-1/2 month low of 108.28 yen set on Friday.

A broad pullback in Asian equities .MIAPJ0000PUS dampened risk sentiment and helped give a lift to the yen, said Christopher Wong, senior FX strategist for Maybank in Singapore.

"There could be some degree of risk aversion," Wong said.

The low-yielding yen is a popular funding currency for investments in higher-yielding assets, and therefore tends to benefit when investors trim their risk exposure.

The yen has risen in recent weeks, after the Bank of Japan reduced its buying of long-dated government bonds in market operations earlier this month, sparking speculation of an eventual exit from its large stimulus.

The next BOJ governor should maintain the central bank's ultra-accommodative stimulus, a key part of the "Abenomics" policy mix, an economic adviser to Prime Minister Shinzo Abe said in an interview published on Tuesday.

Koichi Hamada, an emeritus professor of economics at Yale University, added that the yen could firm in the short-term due to speculation about U.S. currency policy. also praised BOJ Governor Haruhiko Kuroda, who is widely expected to be asked to stay on after his five-year term ends in April, but said there were other well-qualified individuals who could take up the reins.

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