FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, observed the firmer tone from the US dollar.

Key Quotes

"more strong US data ahead of speech from Fed Chair Yellen The US dollar has weakened modestly in the Asian trading session paring gains recorded after the release of the more hawkish than expected FOMC minutes. The dollar index has almost fully retraced its initial move higher following the release of the minutes on Wednesday alongside the pullback in long-term US yields, although short-term US yields still remain higher. The US dollar has been able to hold onto more of its recent gains against the yen with USD/JPY having broken out to the upside from its recent tight trading range between the 101.00 and 103.00 levels."

"The relative underperformance of the yen is also likely a reflection of both building expectations of accelerated monetary easing from the BoJ, and the ongoing easing of safe haven demand for the yen. Global investor risk sentiment has continued to improve this week with US equities rising to a new record high overnight having fully retraced their correction lower from earlier this month. Risk assets and more high beta currencies like the Australian dollar are reacting favourably to further evidence that the US economy is continuing to strengthen while US yields continue to remain close to recent lows."

"A batch of stronger than expected economic reports was released yesterday from the US which has supported global investor risk sentiment and reinforces the case for a stronger US dollar in the near-term. The release of the latest manufacturing PMI survey revealed that business confidence increased by 1.2 point to 58.0 in August."

"It was the highest level since April 2010 providing further evidence that robust manufacturing growth momentum has been sustained so far in Q3. The Philly Fed business outlook survey also increased by 4.1 point to 28.0 in August, and the index of leading indicators by a robust 0.9% in July. The leading index has increased by an average of 0.7%/month over the last three months bringing it back into line with the strong growth momentum evident late last year prior to the Q1 slowdown."

"The pullback in the US dollar overnight ahead of today’s keynote speech from Fed Chair Yellen is understandable following the strong gains recorded earlier this week and the likelihood that Fed Chair Yellen continues to sound dovish which is likely encouraging a paring of long US dollar positions. As we have stated before we do not expect Fed Chair Yellen’s speech on the labour market today to a signal a shift in Fed monetary policy rather she is more likely to reiterate her view that labour market conditions continue to improve but that there is still significant underutilisation of labour market resources allowing the Fed to maintain loose monetary policy."

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