FX round-up: Hawkish Fed-speak helps dollar higher, but yen continues its run

More hawkish US Federal Reserve-speak saw the dollar edge higher against most major crosses barring the yen, which resumed its run-up against the greenback following warnings from US officials at the G7 meeting held over the weekend against potential currency market interventions from the Bank of Japan.

By 17:04 BST, the dollar had shed 0.63% to 109.46 yen, this despite weak Japanese trade data out today and after Friday's gains as the US warned Tokyo against stepping in to stall the yen's bull rally.

"There was a general tendency for dollar-strength across G10 currencies on Monday, with only the Japanese yen countering the market reposition for a potential summer rate hike from the Fed," said CMC Markets analyst Jasper Lawler.

Nevertheless, noted Citi, speculation persisted of a "big bang Bank of Japan" action either in June or July, which had potential to take USDJPY higher in the short-term given long-yen market positioning.

"International disapprobation to FX-oriented policies, a shift to fiscal policy and an undervalued currency/large external surplus suggests yen stronger again medium term," said Citi in a statement.

At 17:04 BST, the greenback was up against commodity currencies such as the loonie, aussie, kiwi and rand. The dollar-index spot price was up 0.1% to $95.431.

The dollar was also up 0.26% to €0.8933 after hawkish commentary from a string of US Federal Reserve officials and despite a worse-than-expected flash manufacturing report for April.

San Francisco Fed President John Williams said the central bank would probably tighten policy a bit quicker in 2017 than in 2016. St. Louis Federal Reserve president James Bullard said the US's relatively tight labour might place upward pressure on inflation, strengthening the case for higher interest rates.

Another Fed policymaker, Eric Rosengren, said in an interview with the Financial Times that the US economy was showing the conditions needed for a 25 basis point hike at its 14-15 June meeting.

Macquarie Research noted that a slowing Eurozone economy contrasted with its improving US counterpart and a more hawkish Fed. "This points to the euro weakening again," Macquarie said in a research note sent to clients.

Capital Economics continued: "The US dollar has now erased more than a third of its loss against other 'major' currencies earlier this spring. We expect the rest to be wiped out in due course and the greenback to make further gains through end-2017."

Against this fabric, sterling slipped 0.33% to $1.4454, was down 0.09% to €1.4454, and lost 1% to 158.215 yen. It also eased against a wide swathe of commodity currencies with the exception of the rand.

The latest Opinium/Observer referendum poll put the likelihood of UK remaining in the EU at 44%, four points ahead of so-called Brexit group at 40%, The Guardian reported. The poll showed an increasing number of Tory voters were now for the UK remaining in the EU.

It added to the increasing number of polls suggesting voters are favouring Britain remaining in the EU, as opposed to a Brexit and the economic turbulence such a ballot might bring.

However, even should the UK choose to remain in the EU investors might yet be surprised by the ensuing market reaction, said Pantheon Macroeconomics' chief UK economist, Samuel Tombs

"Sterling is well below its $1.57 average of the last five years, despite rallying this month to about $1.45, from a low of $1.38 in late February," Tombs said.

"But hopes that cable will bounce back to its previous levels, after a vote to remain in the EU, likely will be dashed."