Dollar climb off lows after more hawkish Fed comments

SYDNEY (Reuters) – The dollar drifted off lows versus the euro and particularly against commodity currencies early in Asia on Friday following more hawkish comments from a senior Federal Reserve official.

Minneapolis Federal Reserve President Narayana Kocherlakota said rates should rise by up to 75 basis points by year-end if core inflation and economic growth picked up as he expected, the Wall Street Journal reported.

The dollar index (.DXY: Quote, Profile, Research), which tracks its performance against a basket of major currencies, clawed off the session low of 75.664 to last stand at 76.005, still down 0.15 percent on the day.

Against the yen, the dollar extended its climb to 83.22 yen, reaching highs not seen since March 11.

Dollar/yen is now back in its trading range roughly between 81-84.5 seen before a massive earthquake hit Japan earlier in the month and caused the yen to rally to a record high on expectations of Japanese repatriation flows.

Kocherlakota’s comments came hot on the heels of those from Kansas City Fed President Thomas Hoenig and St. Louis Fed President James Bullard, who said the Fed needed to exit its unprecedented monetary stimulus earlier in the week.

Those hawkish comments have helped driven U.S. Treasury yields higher this week. The two-year yield hit a six-week high around 0.84 percent on Thursday.

Still, traders appeared to be waiting to hear from Fed Chairman Ben Bernanke himself and Fed officials like Janet Yellen to see if the debate within the policy-setting arm of the central bank has changed substantially.

“There is a right of reply (from them) and the longer the right of reply isn’t taken up, the more important it is. The radio silence is something that should be helping the U.S. dollar,” said Robert Rennie, chief currency strategist at Westpac Bank.

Traders were also treading cautiously ahead of the closely watched non-farm payrolls report due at 1230 GMT. Forecasts center on a rise of 190,000 jobs in March, a Reuters poll showed.

A stronger-than-expected number would add more weight to recent hawkish comments from several Fed officials and underpin the dollar.

The euro pared gains to $1.4170 as the greenback strengthened, having earlier risen as high as $1.4233 on expectations the European Central Bank will hike rates as early as next week.

ECB Governing Council members Nout Wellink and Guy Quaden supported those views warning on Thursday of rising global inflation and said current euro zone interest rates were too low.

The euro barely flinched at news that Portugal’s budget deficit had ballooned above target and Irish banks needed 24 billion euros in extra capital.

The common currency has gained 6 percent in 27 days — from a low of $1.3428 on February 14 to last week’s high at $1.4249, a level representing its immediate resistance. If that goes, euro bulls could target $1.4283, the Nov 4 peak, traders said.

Meanwhile, the Australian currency came off a fresh 29-year high of $1.0373 to $1.0324, erasing most of the gains as the greenback gained a reprieve.

(Reporting by Ian Chua; Editing by Wayne Cole)

Dollar climb off lows after more hawkish Fed comments