Dollar clings on, yen creeps higher as Fed speakers in focus

·3-min read
FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration

By Tom Westbrook

SINGAPORE (Reuters) - The dollar clung to late-week gains on Monday, while the yen and yuan each edged higher, as investors looked ahead to a slew of U.S. Federal Reserve speakers this week and to a decision on the inclusion of Chinese government bonds in a global index.

Chinese bond buying by foreigners has helped drive the yuan up more than 1% this month and it crept back toward a 16-month peak hit last week in early offshore trade, rising 0.2% to 6.7648 per dollar <CNH=D3>.

Inclusion in the FTSE Russell World Government Bond Index <.SBWGU> is likely to boost inflows and support the currency. A decision from FTSE Russell is due on Thursday.

"People are trying to get in ahead of that," said Commonwealth Bank of Australia currency analyst Joe Capurso.

China's benchmark lending rate is also fixed at 0100 GMT and is expected to be held steady for a fifth straight month.

Other moves were modest and volumes light owing to a public holiday in Japan.

Against a basket of currencies <=USD> the dollar was steady at 92.943, roughly in the middle of a range it has kept for about two months.

The euro <EUR=> inched higher to $1.1847 and the pound <GBP=> moved up to $1.2933, though trepidation about rising coronavirus cases in Europe and Brexit turmoil kept a lid on gains.

European countries from Denmark to Greece announced new restrictions last week to curb surging infections, while Britain was reported to be considering a new national lockdown.

The yen <JPY=>, which had its best week since June last week, tacked on 0.07% to 104.50 per dollar.

That is not far from a seven-week high of 104.27 hit on Friday, which came as uncertainty over everything from the U.S. election to the global economic recovery had investors seeking safety, and as U.S. real yields sink lower.

Fed Chairman Jerome Powell is due to appear before Congressional committees later this week while Fed committee members Charles Evans, Raphael Bostic, Lael Brainard, James Bullard, Mary Daly and John Williams also make public speeches.

Their opinions on how the Fed should handle its more accommodative approach to inflation could drive further yen strength if they imply looser monetary policy settings.

"The yen is an attractive currency, I see no reason to sell it," said Chris Weston, head of research at Melbourne brokerage Pepperstone, noting that real yields in Japan are positive.

"This makes the yen very attractive, especially against the pound and dollar, where real rates are not just negative but in the case of the Fed, they are actively seeking lower rates out."

Elsewhere the New Zealand dollar <NZD=D3> was flat at $0.6762, lagging a 0.2% gain in the Australian dollar <AUD=D3> to $0.7301 ahead of a Reserve Bank of New Zealand rate-setting meeting later in the week.

No policy changes are expected at the Wednesday RBNZ meeting, but hints at negative rates, or adjustments to the bank's large-scale asset purchase (LSAP) bond-buying programme could drive volatility in the kiwi.

"We don't expect any change on policy, but the tone will be dovish and they may signal an intention to flex the pace of the LSAP more to help flatten the curve, which would take pressure off the kiwi," ANZ analysts said in a note on Monday.

(Reporting by Tom Westbrook; Editing by Shri Navaratnam)

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