FOREX-Dollar pressured as Fed officials caution about global growth, yen firms

In This Article:

* Dollar lower after Fed officials warn of slowing economic growth

* Yen strengthens due to active safe haven bid

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

By Vatsal Srivastava

SINGAPORE, Nov 19 (Reuters) - The dollar was modestly lower against its key rivals on Monday after Federal Reserve officials expressed caution over the global growth outlook, prompting traders to reassess the pace of future U.S. interest rate increases.

The U.S. currency has enjoyed a strong run this year thanks to the Fed's steady policy tightening on the back of a robust economy and rising wage pressures. A fourth rate hike for this year is expected next month and policy makers had indicated two more by June 2019.

But comments on Friday by Richard Clarida, the Fed's newly appointed vice chair, put to the test market expectations for a steady pace of tightening. Clarida cautioned about a slowdown in global growth, saying "that's something that is going to be relevant" for the outlook for the U.S. economy.

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview with Fox Business, also said he is seeing a growth slowdown in Europe and China.

The comments led some traders to question whether the dollar's rally was nearing its end, with the benchmark U.S. 10 year treasury yields pulling back slightly.

"The market has definitely interpreted these statements as dovish. However, the Fed has always remained data dependent and to that extent, this should not come as a surprise," said Michael McCarthy, chief markets strategist at CMC Markets.

The dollar index, a gauge of its value versus six major peers, traded marginally weaker at 96.45, adding to a decline of 0.5 percent on Friday. The dollar index had hit a 16-month high of 97.69 on Nov. 12.

The yen was fetching 112.70 on the dollar, up slightly on the day. The dollar lost 0.9 percent versus the yen last week as traders rushed into the safe-haven Japanese currency on concerns over U.S.-Sino trade tensions and political risks in Europe around Brexit and the Italian budget.

The euro managed to hold steady in early Asian trade, changing hands at $1.1411, having advanced over the last four trading sessions despite poor economic fundamentals.

"Euro has traded almost exclusively on anti-dollar flows and risk appetite and we expect the same this week as the currency looks past any weakness in Germany's PPI report or Eurozone PMIs," said Kathy Lien, managing director of currency strategy at BK Asset Management.

The British pound wobbled at $1.2832, having come under heavy selling last week amid turmoil over British Prime Minister Theresa May's draft Brexit plan.