The dollar hovering near a two-week high against a basket of currencies on Tuesday with investors focused on the next set of US data to see whether it supports expectations that the Federal Reserve will raise interest rates soon. Despite hawkish comments last week from both Fed Chair Janet Yellen and Vice Chair Stanley Fischer, markets still price in less than 50 percent chance of a rate rise in September.
The next key indicator is Friday's jobs report but Fischer, who said that the data could weigh on the decision over a hike, gave no fresh clues in a television interview. He told Bloomberg TV that the US job market was close to full strength and added the economy had withstood the challenge of a strong dollar. But he also said negative rates seem to work.
"He did not appear too critical about negative rates and that saw the dollar climb down a bit," said a spot trader. US data on Monday showed consumer spending increased for a fourth straight month, pointing to a pickup in growth.
The dollar index, which measures the currency against a basket of six majors, rose to 95.85 earlier in European trade, its highest since August 12. It was last trading at 95.788, and has risen more than 1.5 percent since Friday's low of 94.246 plumbed before Yellen's and Fischer's upbeat comments at the Jackson Hole central bankers' symposium.
"The dollar's appreciation following Jackson Hole was rather moderate," said Lutz Karpowitz, currency strategist at Commerzbank. "And should the Fed really hike interest rates two more times this year as Fischer considers possible, considerably more dollar strength would have to be expected. But the market does not believe that anyway."
Friday's US employment report is expected to show an increase of 180,000 jobs in August, according to the median estimate of 89 economists polled by Reuters, below the better-than-expected 255,000 additions in July. "It's hard to move until we see the jobs figures," said Kumiko Ishikawa, senior FX analyst at Gaitame.Com Research Institute in Tokyo.
Against the low-yielding yen, the dollar rose 0.5 percent to 102.38 yen, having climbed to 102.45 yen its highest since August 9 earlier in the day. The yen was also pegged back by comments from policymakers worried about its recent strength. Asked if Tokyo could intervene in the currency market to stem excessive yen rises, Japanese Chief Cabinet Secretary Yoshihide Suga told Reuters in an interview on Tuesday the government was ready to respond "appropriately".
Koichi Hamada, an adviser to Prime Minister Shinzo Abe, said the Bank of Japan could consider buying foreign bonds as an option to weaken the yen, if government intervention in the currency market is deemed by the United States to be exchange rate manipulation.
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