FX Roundup: Dollar dominates currency crosses on Yellen comments

LONDON (ShareCast) - (ShareCast News) - The dollar traded higher against a basket of global currencies on Friday after the US Federal Reserve Chairwoman Janet Yellen raised expectations of an interest rate rise at some point over the remainder of this year. In a speech at the University of Massachusetts on Thursday evening, Yellen said: "Most FOMC participants, including myself, currently anticipate an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter." Yellen also said she expects inflation to return to the Fed's 2% target over the next few years and that weak growth in emerging economies will not have a big enough impact on the US to influence policy.

In response, both the euro and pound traded lower against the greenback, down 0.42% and 0.30% changing hands at $1.1183 and $1.5196 respectively. The dollar also rose against the yen , up 0.47% to JPY120.64, and the Swiss franc , up 0.10% to CHF0.9764.

Emerging market and commodities exporters' currencies continued to trade lower against the dollar in line with market expectations. The dollar rose against the Singapore dollar (up 0.05%), Korean won (up 0.17%) and Malaysian ringgit (up 0.28%) for a third successive session. However, the Hong Kong dollar ended broadly flat.

Kit Juckes, head of forex at Societe Generale (Swiss: 519928.SW - news) , said, "Market volatility has been elevated following the Chinese FX regime shift and has remained so despite the Fed delaying its rate lift-off.

"Dollar strength exacerbates emerging market woes, which further restrains G3 (dollars, yen and euros) bond yields. The structural Chinese economic slowdown implies that USD/CNY will climb higher in time, and that will usher in another leg of EM and commodity forex weakness." Elsewhere, the Australian dollar fell against the greenback yet again, shedding 0.17% changing hands at US$0.7012. Concurrently, the New Zealand dollar fell 0.05% against the greenback changing hands at US$0.6352.

Analysts at BNP Paribas (Xetra: 887771 - news) said markets are currently positioned long of forex funders but neutral on USD and GBP. "Risk taking usually rises during the fourth quarter. The current risk environment favours downside EUR/USD option structures (Other OTC: UBGXF - news) ."