Dollar steadies in Asia

The dollar steadied on Friday but was still on the defensive after Federal Reserve officials bolstered expectations of an aggressive rate cut this month to address weakening price pressures. At a central banking conference on Thursday, New York Fed President John Williams argued for pre-emptive measures to avoid having to deal with too low inflation and interest rates.
That sent the dollar down before it bounced slightly in early Asian trade, after a New York Fed representative subsequently said Williams' comments were academic and not about immediate policy direction. Still, investors took his remarks along with separate comments from Fed Vice Chair Richard Clarida as another dovish signal from the central bank, which could be opening the way for a big rate cut at the end of this month.
The dollar stood at 107.42 yen, up 0.2% from late US levels after having hit a three-week low of 107.21 the previous day. The euro eased slightly to $1.1266 from $1.1282. On the week, the dollar is down 0.4% versus the yen and 0.1% on the euro.
The dollar index, which hit a two-week low of 96.648, bounced to 96.792. The greenback fell broadly on Thursday after Williams' remarks bolstered bets that the Fed would cut interest rates by 50 basis points, rather than 25 basis points. Williams said when rates and inflation are low, policymakers cannot afford to keep their "powder dry" and wait for potential economic problems to materialise.
That is especially true with neutral rates that would neither restrict nor accelerate the US economy, he said. When adjusted for inflation, the neutral rate is near the Fed's current policy rate, which is in a range of 2.25-2.50%. Financial markets reacted quickly, with money market futures pricing in almost a 70% chance of a 50 basis point cut at its policy meeting on July 30-31 at one point.
The odds eased to around 40% after the New York Fed's clarification of his speech. The pound stood at $1.2552, flat in Asia after 0.93% gains overnight, though it was the worst performer among G10 currencies so far this week, with a loss of 0.2%. The biggest stride was made by the New Zealand dollar, which is up 1.3% for the week at a 3-1/2-month high of $0.6785, as the Fed's anticipated monetary easing is seen boosting the relative yield attraction of the kiwi.
The currency has the second highest bond yield among G10 currencies after the US dollar. MSCI's emerging market currency index has risen 0.35% so far this week to a four-month high of 1,657.07, coming within sight of this year's double peak around 1,658, hit in late January and March. The Brazilian real rose to five-month high of 3.7172 to the dollar on Thursday while the South African rand also scaled a five-month peak of 13.8175 and last stood at 13.855.