By Saikat Chatterjee
LONDON (Reuters) – The Japanese yen remained on the back foot against high-yielding currencies such as the Australian dollar on Friday after dovish comments from major policymakers this week reaffirmed market expectations that interest rates will rise very slowly.
“It is broadly a U.S. dollar-negative market as latest comments from Yellen and others suggest that interest rates will rise very gently and that is supportive for high-yielding currencies for now,” said Viraj Patel, an FX strategist at ING Bank in London.
Against the yen, the Australian dollar rose 0.23 percent and sterling climbed 0.31 percent, with a relatively upbeat outlook from Fitch Ratings on China also supporting risk sentiment.
Major market gauges of asset volatility, such as the Merrill Lynch Option volatility estimate <.MERMOVE1M> and VIX <.VIX>, drifted lower on Friday, providing a boost to carry trades.
The U.S. currency’s recent advance, notably against the yen
That view was further reinforced by other U.S. policymakers such as Dallas Federal Reserve Bank President Robert Kaplan on Thursday, though analysts were wary of kicking the dollar lower before U.S. inflation data.
Signs of a pick-up in U.S. inflation could reinforce views that the Fed would hike interest rates again sooner rather than later, which would lift Treasury yields and the dollar.
However, the core consumer price index (CPI) is forecast to have risen only 1.7 percent year-on-year in June after a similar gain in May. On a month-on-month basis, the core CPI is expected to rise 0.2 percent after a 0.1 percent gain the previous month.
The euro was little changed at $1.1407
(Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Catherine Evans)